Phoenix Auditing

Hindu Undivided Family

  1. What is HUF?
  2. How to Form HUF?
  3. How is HUF taxed?
  4. Disadvantages of forming a HUF
  5. Who should opt for HUF?
  1. What is HUF?

HUF- Hindu Undivided Family.

HUF consists of all individuals who are lineally descended from a common ancestor and also comprises of unmarried daughters. HUF is not formed by a contract but by the status of a family i.e., it is created automatically in any Hindu Family. Having a common ancestor is a pre-requisite to form a HUF.

  • How to Form HUF?

Minimum two members are required to form a HUF, constituting a joint family.

Steps to create HUF:

  • Create A HUF Deed
  • Apply For HUF  PAN Card
  • Open HUF Bank Account
  • How is HUF taxed?
  • HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members
  • HUF is eligible for deductions under section 80 and other relevant exemptions
  • Allowed to take insurance policies for its members
  •  Can also pay salary to its members should they contribute to HUF functioning
  • Investment is allowed from HUF income and returns from such investments are taxable.
  • An HUF is taxed at the same rates as an individual.
  • Disadvantages of forming a HUF.
  • Equal rights of members
  • Partition
  • Joint family system losing relevance
  • HUF continues to be assessed as such till partition
  • Who should opt for HUF?

HUF arrangement suits those taxpayers who have income from ancestral property and expects to inherit these assets (both real and financial). A taxpayer will be able to divert the inheritance to the HUF account and thus preventing personal tax liability from increasing. In addition, HUF is also beneficial to taxpayers with a higher savings rate.