The concept of the HUF traces its roots to ancient Hindu law, such as the Manu Smriti. Over time, the Indian government has sought to modernize these laws to align with contemporary egalitarian values. Notably, until 2005, daughters were not considered coparceners in their father's HUF, unlike sons who became coparceners at birth. The 2005 amendment granted daughters equal rights, making them coparceners at birth with the same rights as sons in family properties.
Formation and Structure of HUF
An HUF is formed as soon as a Hindu couple gets married. HUF is created the moment the couple completes the marriage rituals. A minimum of 2 people, typically the husband & wife, constitute a family, and they don't need to wait until they have children to form an HUF. Every Hindu becomes a member of an HUF at birth, regardless of the delivery method.
An HUF consists of:
a. Karta: The head of the family, typically the eldest male member. b. Coparceners: All sons and daughters. c. Members: The wife of the Karta. Under the Income Tax Act, an HUF is treated as a separate entity for assessment purposes.
Fund Allocation and Taxation
An HUF remains inactive until it receives funds. The challenge lies in legally funding the HUF. Members cannot contribute their personal money to the HUF due to Section 64(2) of the Income Tax Act, which taxes the income earned by the HUF on such contributions in the hands of the individual member. Some ways to fund an HUF include: a. Gifts from Strangers: Up to Rs 50,000. b. Gifts from Relatives: Larger sums can be received from relatives (like Parents incl. Wife’s Parents).
Managing HUF Affairs by NRIs
HUFs can open savings accounts, although they are non-individual entities. To manage the HUF's finances, the following steps are recommended: i. HUF Formation Deed: establishing the HUF. ii. Gift Deed: For receiving funds from relatives like Parents. iii. PAN Application: Obtain a PAN for the HUF. iv. Bank Account: Open a Bank Account in India for transactions. (HUF can give Power of Attorney to their local relatives like parents)
Property and Income
The property of a joint family includes: a. Ancestral Property: Inherited from forefathers. b. Separate Property of Coparceners: Thrown into the common pool. c. Property Acquired with Ancestral Property. Income from the HUF includes profits from business, house property, capital gains, and other sources. This income is separately assessed and taxed. HUFs enjoy deductions under Section 80C and other tax exemptions available to individuals.
Non-Resident Indians (NRIs) and HUF
An HUF whose management and control are exercised from within India is considered a resident. The tax benefits and exemptions also apply to resident HUFs.
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Establishing an HUF Bank Account and PAN
Hindu Undivided Family (HUF):
The concept of the HUF traces its roots to ancient Hindu law, such as the Manu Smriti. Over time, the Indian government has sought to modernize these laws to align with contemporary egalitarian values. Notably, until 2005, daughters were not considered coparceners in their father's HUF, unlike sons who became coparceners at birth. The 2005 amendment granted daughters equal rights, making them coparceners at birth with the same rights as sons in family properties.
Formation and Structure of HUF
An HUF is formed as soon as a Hindu couple gets married. HUF is created the moment the couple completes the marriage rituals. A minimum of 2 people, typically the husband & wife, constitute a family, and they don't need to wait until they have children to form an HUF. Every Hindu becomes a member of an HUF at birth, regardless of the delivery method.
An HUF consists of:
a. Karta: The head of the family, typically the eldest male member.
b. Coparceners: All sons and daughters.
c. Members: The wife of the Karta.
Under the Income Tax Act, an HUF is treated as a separate entity for assessment purposes.
Fund Allocation and Taxation
An HUF remains inactive until it receives funds. The challenge lies in legally funding the HUF. Members cannot contribute their personal money to the HUF due to Section 64(2) of the Income Tax Act, which taxes the income earned by the HUF on such contributions in the hands of the individual member.
Some ways to fund an HUF include:
a. Gifts from Strangers: Up to Rs 50,000.
b. Gifts from Relatives: Larger sums can be received from relatives (like Parents incl. Wife’s Parents).
Managing HUF Affairs by NRIs
HUFs can open savings accounts, although they are non-individual entities. To manage the HUF's finances, the following steps are recommended:
i. HUF Formation Deed: establishing the HUF.
ii. Gift Deed: For receiving funds from relatives like Parents.
iii. PAN Application: Obtain a PAN for the HUF.
iv. Bank Account: Open a Bank Account in India for transactions. (HUF can give Power of Attorney to their local relatives like parents)
Property and Income
The property of a joint family includes:
a. Ancestral Property: Inherited from forefathers.
b. Separate Property of Coparceners: Thrown into the common pool.
c. Property Acquired with Ancestral Property.
Income from the HUF includes profits from business, house property, capital gains, and other sources. This income is separately assessed and taxed. HUFs enjoy deductions under Section 80C and other tax exemptions available to individuals.
Non-Resident Indians (NRIs) and HUF
An HUF whose management and control are exercised from within India is considered a resident. The tax benefits and exemptions also apply to resident HUFs.
Also Read: Huf Vs Private Trust What Are Key Distinctions