Understanding Hindu Undivided Family (HUF)
The HUF refers to the Hindu Undivided Family. It means a family consisting of lineal descendants from a common ancestor and their wives and unmarried daughters. The HUF is recognised as a legal entity under the Income-tax Act, 1961, which. allows it to avail of tax exemptions and deductions similar to those available to individuals. While HUF originates from Hindu law practices, it also includes Buddhists, Jains and Sikhs.
The HUF allows for the consolidation of family assets and properties under a single entity, which eases the management and transfer of wealth within the family. The properties transferred to HUF are then jointly owned by all its members.
Tax Benefits of HUF
The HUF is provided with a unique tax identity and a separate PAN. The HUF is eligible for a basic tax exemption limit, under Section 80D, 80DD and 80TTA, and for dual exemptions under Section 80C of the Income Tax Act. It also allows for the splitting of income, which allows people in higher tax categories to transfer their income to the HUF which may pay less in taxes overall. The HUF also allows for salary deductions for contributions made by members of the HUF to its operations as long as the salaries represent legitimate services rendered and are fair.
How Is HUF Formed?
Formulating a HUF Deed is an important legal document that announces the HUF’s creation and includes a membership roster, the founding date, and particulars on the assets that are part of the HUF’s portfolio. The next step is obtaining a PAN and opening a bank account of the HUF.
Pros and Cons of HUF
The formation of a HUF offers several benefits which include tax saving, simplifying inheritance and estate planning, and income redistribution. The disadvantages of forming a HUF include equal rights to property for all HUF members, and a complex dissolution process as HUF dissolution or asset distribution requires unanimous permission and consensus of all members.
Things to remember
- It requires at least two people to form HUF
- Members can include wives and unmarried daughters
- A female can serve as the karta of the family
- HUF is recognised in India only
How to Open a Demat Account for HUF with Angel One?
- Get started: Call 18001020 to connect with your nearest Angel One Authorised Person. They’ll guide you through the simple offline process, available across India.
- Complete the application: Fill out the required form with details like PAN, address, and HUF declaration.
- Submit required documents: Provide PAN cards (for HUF and Karta), address proof, a HUF declaration, and a photograph of the Karta.
- Receive your unique client code: After verification, your Unique Client Code will be issued and reported to stock exchanges.
- Authorise transactions: Use DDPI (Demat Debit and Pledge Instruction) for secure Demat transactions.