What is a Hindu Undivided Family (HUF)?
A Hindu Undivided Family (HUF) is a separate legal entity
recognized under Indian tax law, allowing families following Hindu, Jain, Sikh,
and Buddhist laws to collectively own property and manage income. It serves as
a tool for family wealth management and potential tax optimization.
What is the difference between a member and a coparcener in
an HUF?
A member of an HUF is any individual part of the family
through lineal descent, marriage (for wives of male coparceners), or adoption.
Members have the right to maintenance from the HUF property but generally
cannot demand partition. A coparcener, on the other hand, is a member with a
birthright in the joint family property. Under the Hindu Succession (Amendment)
Act, 2005, both sons and daughters are coparceners by birth, with rights
including demanding partition, joint ownership, limited alienation rights, and
the right to question the Karta's actions.
How is an HUF formed?
Forming an HUF involves creating a legal document called an
HUF Deed. This deed should be on stamp paper and include details such as the
HUF's name, details of the Karta (head of the family), coparceners, other
members, the source of the initial capital (corpus), the HUF's address, and the
date of formation. The deed should be signed by the Karta and adult coparceners
in the presence of witnesses. While not mandatory, notarization adds legal
authenticity.
What is the process for obtaining a PAN for an HUF?
Once the HUF Deed is prepared, the next step is to apply for
a Permanent Account Number (PAN) for the HUF. This requires submitting proof of
identity, address, and date of birth of the Karta, along with proof of the
HUF's existence, primarily a copy of the duly executed HUF Deed. In some cases,
an affidavit from the Karta listing coparceners might also be needed.
What are the possible sources of capital for an HUF?
The initial capital, or corpus, of an HUF can come from
several sources: ancestral property inherited through generations, gifts
received by the HUF (from members or, subject to certain tax implications, from
non-members), loans taken by the HUF, or income generated from a family
business or rental property owned by the HUF.
How do income tax clubbing provisions apply to gifts made to
an HUF?
If a member of an HUF gifts their individual property to the
HUF, the income derived from that property by the HUF will be
"clubbed" with the income of the gifting individual for tax purposes.
Gifts received by an HUF from non-members are generally taxable in the HUF's
hands if the aggregate value exceeds ₹50,000 in a financial year, but the
income generated from such gifts is not typically clubbed with the non-member
donor's income.
What are the tax implications for an HUF?
An HUF is treated as a separate entity for tax purposes and
has its own PAN. The income tax slabs applicable to an HUF are the same as
those for individuals. HUFs are eligible for deductions under sections like 80C
(including investments in a member's PPF) and 80D. However, the rebate under
Section 87A is not available to HUFs. It's important to note that while HUFs
can have various income sources, they generally cannot have salary income. They
can, however, earn income from sources like ancestral property, business, or
investments.
How is an HUF dissolved?
An HUF is not formally dissolved but rather undergoes
partition or separation. This process involves the distribution of assets among
the members or the sale of assets and the division of the proceeds and
investments. Under Income Tax law, an HUF partition is recognized as a
non-taxable event.