Hindu Undivided Family is referred to as the Joint Hindu Family or HUF for the purpose of income tax. There are various tax advantages from running a business or earning under various heads of Income Tax Returns form that can save a taxable income that you should choose to create a HUF by the law. HUF is taxed separately from its members. You can save valuables, properties, and other assets to form a large number of funds in a different way than any other business organization. HUF can be formed upon the marriage of an individual. The dates for HUF shall be considered on the marriage of an individual. Hence, HUF can not be formed with family members such as siblings and parents. It is only for you, your spouse, and your children till they are minors.
How can a HUF save tax for you?
If a family is trying to build assets then HUF is all that you should go to. If your spouse form a HUF along with your two children all 4 of you and the HUF can claim tax indemnity under section 80C.
The following information is to be considered while you form the Hindu Undivided Family (HUF):
- An individual cannot form a HUF; a family should form it.
- A HUF is created at the time of an individual’s marriage.
- One must have the same ancestor including the lineal descendants including their daughters and wives in order to form the HUF
- Buddhists and Jains can also form HUF.
- HUF mainly consists of the assets that are acquired as a gift, a property acquired by selling or buying a joint family property, an ancestral property, a Will, or common savings by the members of the HUF.
- You should get a formally registered name; you must make a legal that would have the names of the HUF members, and the business while you are forming HUF. After this process, a bank account will be opened and a PAN no will be issued.
- The rates of taxation for Hindu Undivided Family are just like an individual’s taxation rates.
- The exclusion under Section 80 and other tax deductions can be claimed in their income tax return by the Karta of a HUF.
- HUFs can take an insurance policy for the members of the family.
- The HUFs can also make some investments from their income, but any returns from these investments are taxable in the hands of the HUF.
- In case HUF pays salary to its members who are giving their fair share to the work or the joint business of the HUF, then this salary can be reduced from the taxable income of HUF.
HERE’S HOW YOU CAN FORM A HUF
According to Hindu law, a HUF is headed by a Karta who should be the eldest male member of the family. Meanwhile, in 2016, the Delhi High Court order has finally given women, namely, the eldest female member the right to be Karta of a HUF. Since the HUF is being formed for tax purposes, you can start one by making a HUF deed, This deed is a written document on a stamp paper stating the names of Karta and the co-parceners of HUF and then applying for a Hindu Undivided Family PAN card. HUF PAN Card is required in Form 49A and then opening a HUF bank account.
A Marriage by itself is enough evidence of the existence of a Hindu Undivided Family but financial institutions increasingly insist on a formal deed spelling out the names of the Karta and co-parceners in the joint family A co-parcener is that member of the joint family who is entitled to a right in the family assets/ property and demand partition of shares from the Karta. Know that if a partition is challenged and goes to the court, the justice system usually settles matters by equally distributing rights to all parties concerned.
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