Hindu Undivided Family(HUF)

Updated on : April 3, 2023 - 3 p.m. 17 min read.

An HUF is a family that consists of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. It is governed by the Hindu law and is recognized as a separate entity for the purpose of taxation. An HUF has a separate PAN card, and it can own property, invest in shares, and conduct business transactions in its own name.

How does it works?

A Hindu Undivided Family (HUF) is a legal entity that is recognized under Hindu law and comprises of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. Here is how an HUF works:

Formation: An HUF is formed automatically by law when a Hindu man gets married and has a child. The family members who are descended from the common ancestor automatically become a part of the HUF.
Karta: The eldest male member of the family is known as the karta or the head of the HUF. The karta manages the affairs of the HUF and makes decisions on behalf of the HUF.
Ownership of Property: The HUF owns property collectively, and the karta manages the property on behalf of the HUF. The property owned by the HUF can include ancestral property, property acquired through gifts, or property acquired through the HUF's income.
Taxation: The HUF is treated as a separate tax entity and is taxed accordingly. The HUF can earn income, and the karta files a separate income tax return on behalf of the HUF.
Business Activities: The HUF can carry out business activities, and the karta manages the business on behalf of the HUF. The profits earned by the HUF are taxed as per the tax laws applicable to HUF.
Succession: The HUF continues to exist even after the death of the karta, and the next senior most male member of the family becomes the new karta. The assets owned by the HUF are also passed on to the next karta after the death of the current karta.

HUF opening a bank account

Opening a bank account for a Hindu Undivided Family (HUF) is a straightforward process, and it requires the following steps:

Obtain a PAN Card: The HUF should first obtain a PAN card in the name of the HUF. This is required for all tax-related transactions, and it serves as a unique identification number for the HUF.
Gather Required Documents: The HUF should gather all the necessary documents to open a bank account, which typically include the following:

PAN card of the HUF
Identity proof and address proof of the karta (head of the family)
Photographs of the karta and other members of the HUF
Declaration of the members of the HUF, stating their names and address

Choose a Bank: The HUF should choose a bank that offers the services and features that meet their needs. They can compare different banks and their account types, interest rates, and fees to choose the best option for their HUF.
Visit the Bank Branch: The HUF should visit the bank branch along with all the required documents and meet with a bank representative to open the account. The bank representative will help with the account opening process and provide guidance on any additional documentation required.
Complete the Formalities: The HUF will need to fill out an account opening form and sign a declaration form, stating that all the information provided is true and accurate. The karta will also need to sign as an authorized signatory on the account.
Deposit Funds: Once the account is opened, the HUF can deposit funds into the account and start using it for financial transactions.

It is important to note that the process may vary slightly depending on the bank and the type of account being opened. It is always a good idea to check with the bank to ensure that all the necessary requirements have been met before opening an account for the HUF.

Hindu Undivided Family Pan card

A Hindu Undivided Family (HUF) can obtain a PAN (Permanent Account Number) card by following these steps:

Determine the Need: The HUF should determine if it requires a PAN card or not. It is necessary to have a PAN card if the HUF has taxable income or if it is planning to carry out any financial transactions that require a PAN card.
Gather Required Documents: The HUF should gather all the necessary documents required to apply for a PAN card, which typically include the following:

Identity proof of the karta (head of the family)
Address proof of the karta
Photograph of the karta
Proof of the existence of the HUF, such as a declaration stating the names of all the family members and their addresses.

Fill out the Application Form: The HUF should fill out the application form for a PAN card, which is available on the official website of the Income Tax Department of India or through NSDL or UTIITSL websites.
Submit the Application: The HUF should submit the application along with the necessary documents to the nearest TIN (Tax Information Network) facilitation center or authorized PAN agency.
Pay the Fee: The HUF should pay the fee for the PAN card application, which can be done online or through a demand draft.
Track the Status: The HUF can track the status of their PAN card application online using the acknowledgement number provided at the time of submission.
Receive the PAN Card: Once the application is processed, the HUF will receive the PAN card by post at the address mentioned in the application form.

Benefits of HUF

Here are some of the benefits of forming a Hindu Undivided Family (HUF):

Tax Benefits: An HUF is treated as a separate entity for tax purposes and is eligible to avail of various tax benefits. The HUF can claim tax deductions for various expenses incurred in the course of business activities or for investments made under various sections of the Income Tax Act.
Asset Protection: The HUF's assets are collectively owned by all members of the family and are managed by the karta. This provides asset protection and safeguards the family's wealth from any individual member's creditors or legal liabilities.
Business Continuity: The HUF can carry on business activities, and the karta manages the business on behalf of the HUF. This ensures continuity of the business, even in the event of the death of any individual member.
Succession Planning: The HUF provides an effective way to plan for the succession of family assets. The assets owned by the HUF are passed on to the next karta after the death of the current karta, ensuring the continuity of the family's wealth and assets.
Limited Liability: The liability of each member of the HUF is limited to their respective shares in the HUF. This protects individual members from being held liable for any debt or liability incurred by the HUF.
Ancestral Property: The HUF is the best way to preserve and manage ancestral property, which is inherited by the family members. The HUF can also acquire and manage property on behalf of its members.

In summary, forming an HUF can provide various benefits, including tax benefits, asset protection, business continuity, succession planning, limited liability, and management of ancestral property. It is always advisable to consult a tax professional or a legal expert to determine the most suitable form of a legal entity for your family.

By Esha Arora

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