Article explains What is HUF, How HUF is formed, Evaluation of HUF, How HUF Helped in Tax Planning, Basic criteria for an HUF, Important terms which are used in a joint Hindu Family Business and Limitations of a Joint Hindu Family Business.
HUF stands for Hindu Undivided Family in which members of the family come together to form a HUF. Most Senior Person Member of the Family is known as krta who is responsible for all the affairs of HUF. A child automatically becomes the member of HUF at the time of Birth.
Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’). HUF is a separate entity for the purpose of assessment under the Act.
Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family.
Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act.
HUF is formed by creating a deed between the Members of the Family. The deed shall contain details of Members of family, nature of business & other relevant details of HUF. On the Basis of notarised deed, an application for PAN is filed in form 49A & on the basis of deed & PAN card a bank is open on the name of HUF.
Under the Act, a HUF is acknowledged as a distinct assessable entity. If the two criteria below are met, its revenue may be determined:
There needs to be a partnership. In this regard, it is important to note that once a joint family income is determined to be HUF income, it remains determined as such in successive assessment years until coparceners assert their right to partition.
A joint family property should be established, consisting of property transferred by family members as well as property inherited from ancestors.
Ancestral Property: The possessions that a man inherits from any of his three direct male ancestors—his father, grandfather, or great grandfather—are referred to as his ancestral property.
As a result, assets received from any other relative are not considered ancestral assets. The following families are subject to taxation on their inherited income as HUF:
a) A family with a widowed mother and sons (who may be minor or major);
b) A couple without children;
c) A family with two widows of deceased brothers;
d) A family with two or more brothers;
e) A family with an uncle and a nephew;
f) A family with a mother, son, and son’s wife;
g) A man and his late brother’s wife.
As HUF is treated as separate person having its separate bank account & PAN therefore HUF is very much helpful in Tax Planning & not in Tax Evasion.
HUF is eligible to claim deduction under chapter VIA such as 80C, 80TTA, 80D etc.
HINDU UNDIVIDED FAMILY
What is Hindu Undivided Family
Hindu Undivided Family as the name suggests is a family of Hindus. There are more Buddhists, Jains and Sikhs: like Hindus are, and can therefore, set up HUFs. The concept of an HUF has basically evolved from ancient Hindu Law. There are two schools of law governing HUFs in India-Mitashara and Dayabhaga and quite a few differences in the rights and obligations of HUF members in each of these school. However, since the Dayabhaga school is largely confined to Bengal, we shall, in this artical, only consider the provisions of the Mitakshara school, which are applicable to the rest of India.
There are some essentail conditions that must be fulfilled to qualify as an HUF. These are outlined below:
1. Hindu undivided family:
2. Karta
3. Ancestral Property
4. Co-parceners
Below mentioned are the few demerits of a joint Hindu family business:
1. Limited Resources
2. Unlimited liability of Karta
3. Limited Managerial Skills
You may contact the author for further information at 9899595719 or [email protected]
Disclaimer: The above article is only for information purpose and is on based on the author’s interpretation of the relevant provision. The same should not be considered as professional advice.