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OVERVIEW
HINDU UNDIVIDED FAMILY (HUF)
Hindu Undivided Family (HUF) is a legal entity recognized under Hindu law in India. A HUF consists of all persons lineally descended from a common ancestor, including their spouses. The head of the HUF is typically the oldest male member, or the “Karta,” who manages the HUF’s affairs. A HUF has a separate legal and tax identity distinct from its members. It can own assets, carry out business activities, and even pay taxes in its own name. The HUF is taxed as a separate entity under the Income Tax Act, and the tax rate is the same as that for an individual. Hence, a HUF is entitled to a separate basic exemption limit and deductions under the Income Tax Act.
Note: Only Hindus, Sikhs, Jains and Buddhists can form a HUF in India, and the family members must follow the customs and traditions of Hindu law.
OFFICIAL MEMBERS
WHO ARE THE OFFICIAL MEMBERS OF A HUF?
The constitution of a HUF typically includes the following members:
Karta:
The Karta is the head of the HUF and is usually the eldest male member (Note: As per the Hindu Succession Act 2005 the eldest female member of the HUF can also assume the role of a Karta).The Karta manages the affairs of the HUF and takes decisions regarding the family’s assets and investments.
Coparceners:
Coparceners are the male descendants and first level female descendants of the HUF who are entitled to inherit ancestral property. Coparceners have equal rights to the property and can demand a partition of the family property. (Note:Before the Hindu Succession Act 2005, only unmarried daughters can be a Coparcener of the HUF, the act made a major adjustment stating that even married daughters retain their Coparcener status in the HUF.)
Members:
Members of the HUF include the Karta, Coparceners, and their spouses. They are entitled to receive a share in the family income and property. (Note: The Children of Male coparceners become Coparceners by birth, while the children of Female Coparceners can only become members of the HUF.)
Minor members:
Minor members of the family, such as children, are also part of the HUF. However, they can only actively participate in the management of the family’s affairs once they attain a certain age and become a major.
The constitution of a HUF is governed by the Hindu Succession Act, which lays down the rules for inheritance and succession. The HUF can also have its own bylaws and regulations, which are usually laid down in a HUF deed.
COMPLIANCE OF HUF
REGISTRATION AND COMPLIANCE OF A HUF
To register a Hindu Undivided Family (HUF) in India, you need to follow the below steps:
Create a HUF deed:
A HUF is formed through a deed of partition or a declaration of a HUF. The deed should be executed on a non-judicial stamp paper of appropriate value and should be signed by the Karta of the HUF along with two witnesses.
Obtain a PAN card:
You need to obtain a Permanent Account Number (PAN) card for the HUF. The PAN card is necessary for various transactions and to file income tax returns.
Open a bank account:
You need to open a bank account in the name of the HUF. The bank account should be operated by the Karta of the HUF
Register for other registrations:
If the HUF engages in any business or profession, it may need to register for GST, professional tax, or any other registrations required for the business or profession.
File income tax returns:
The HUF needs to file income tax returns every year if the total income exceeds the exemption limit. The returns should be filed using the PAN card obtained for the HUF.
Maintain records:
It is essential to maintain proper books of accounts and records for the HUF to comply with income tax regulations.
To register a HUF, you can consult a legal expert or a Tax Consulting Provider like Taxkey to guide you through the process and help you with the necessary documentation.
CHECK-LIST
DOCUMENT CHECK-LIST (FOR REGISTERING YOUR HUF)
The following documents are required to successfully register a HUF in India.
PAN card:
PAN (Permanent Account Number) card (Issued by the Income Tax Department of India) is a mandatory document required for HUF registration in India.
Identity proof:
The identity proof documents of the Karta (head of the HUF) and other members of the family, such as Aadhaar cards, voter IDs, passports, etc., are required.
Address proof:
The address proof documents of the Karta and other members of the family, such as Aadhaar cards, voter IDs, passports, utility bills, etc., are required.
Declaration:
A declaration from the Karta stating that the HUF is being formed for the benefit of the family members and that they are all related through blood or marriage.
Bank account details:
The bank account details of the HUF, including the name of the bank, branch, and account number.
Photographs:
Passport-sized photographs of the Karta and other members of the family.
Property documents
If the HUF owns any property, then the property documents, such as the sale deed, title deed, etc., need to be submitted.
Once all these documents are ready, they can be submitted to the Income Tax Department for the registration of the HUF.
ADVANTAGES OF HUF
ADVANTAGES OF FORMING A HUF IN INDIA
Forming a Hindu Undivided Family (HUF) in India offers several advantages, including:
Tax benefits:
A HUF is treated as a separate entity for tax purposes, which means that it is eligible for tax deductions and exemptions available to individuals. This can result in significant tax savings for the HUF.
Continuity of family business:
A HUF is a good vehicle for preserving and managing family wealth and assets, including ancestral property. It helps maintain continuity in family businesses across generations, and it also simplifies succession planning.
Protection of family assets:
A HUF offers protection to the family’s assets from legal and financial liabilities, as the assets are held in the name of the HUF and not in the individual names of family members.
Easy creation and dissolution:
A HUF can be created easily through a gift or a will, and it can also be dissolved easily if necessary. This provides flexibility to families to manage their affairs as per their changing circumstances.
Limited liability:
The liability of HUF members is limited to their respective shares in the HUF’s assets. This means that the individual member’s personal assets are protected in case of any legal or financial liabilities incurred by the HUF. (Note: However, the financial liability of the Karta is unlimited in a HUF) Overall, a HUF provides a unique way for Hindu families to manage their affairs, preserve their wealth and assets, and minimize their tax liability. However, forming a HUF requires careful consideration and planning, and it is advisable to seek professional advice before setting up a HUF.
CURRENT TAX SLABS ON HUF
INCOME TAX DEPARTMENT’S CURRENT TAX SLABS ON HUF
For HUFs, the tax slabs are the same as for individuals. The tax rates for the financial year 2022-2023 are as follows:
|
For income up to Rs. 2.5 lakh: |
No tax |
|
For income between Rs. 2.5 lakhs and Rs. 5 lakhs: |
5% tax |
|
For income between Rs. 5 lakhs and Rs. 7.5 lakhs: |
10% tax |
|
For income between Rs. 7.5 lakhs and Rs. 10 lakhs: |
15% tax |
|
For income between Rs. 10 lakhs and Rs. 12.5 lakhs: |
20% tax |
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For income between Rs. 12.5 lakhs and Rs. 15 lakhs: |
25% tax |
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For income above Rs. 15 lakhs: |
30% tax |
Also, these rates are subject to change as per any new tax reforms or updates introduced by the Indian government.
HELP
HOW CAN TAXKEY HELP?
Formation of HUF:
We can guide the family members through the process of forming a HUF, including drafting the HUF deed, registering it with the authorities, and ensuring that all the necessary documentation is in place.
Tax planning:
We can help the HUF members with tax planning strategies that can help minimize tax liabilities and maximize tax benefits. We can advise on the investments and expenditures that can qualify for tax exemptions and deductions.
Compliance:
We can ensure that the HUF complies with all the applicable tax laws and regulations, such as filing income tax returns, payment of taxes, and maintaining proper records and accounts.
Estate planning:
We can help the Karta of the HUF with estate planning, including ensuring that there is a smooth succession plan in place and that the assets of the HUF are transferred to the next generation smoothly without any legal disputes.
Representation:
We can represent the HUF in case of any tax disputes or audits by the tax authorities and help resolve any tax-related issues. Overall, as Taxkey, we can provide valuable guidance and support to the members of the HUF in navigating the complex tax laws and regulations in India and ensure that the HUF remains compliant with all the applicable laws and regulations.
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