all about huf's

8/10/2019 All About HUF's

1/16

All About HUFHindu Undivided Family


2/16

BENEFITS UNDER INCOME TAX ACT

Income received by members from HUF property or income, exempt u/s. 10(2) inthe hands of member;

Benefit u/s. 23(2) of the Act for one self occupied property for the own use of thefamily;

Deduction u/s. 24(b) of the Act up to INR 200 k for interest on loan for acquisitionof self occupied property;

Presumptive taxation of business income u/s. 44 AD;

Distribution of capital assets on total or partial partition of HUF not regarded astransfer u/s.47(i) no capital gain to HUF;

Exemption from capital gains u/s.54 (residential house property), 54B (ruralagriculture land), 54F (investment in first or second residential house), 10(37)(compulsory acquisition of urban land);


3/16

OTHER ASPECTS UNDER INCOME TAX ACT

Gifts up to INR 50 k not taxable u/s.56 (2) (vii), however if amount exceeds 50k, full amount is taxable. (HUF does not have any relatives, hence taxable giftup to basic exemption limit can be taken from relatives of members);

Clubbing of income in case of individual property thrown into family hotchpotby any Member of HUF u/s. 64(2);

Benefit of adjustment up to basic exemption limit from taxable short termcapital gain u/s.111A or long term capital gain u/s.112;

Partial partition of HUF is not recognized under income tax law, HUFcontinues to be assessed in the status as such.


4/16

HOW CAN YOU CREATE YOUR HUF?

HUF is creature of law and automatically comes into existence on the marriageof a Hindu male.

Birth of a child is not necessary for the purpose of recognition of the status ofHUF.

HUF can acquire properties by partition of larger HUF or ancestral property orby way of Gift (however gift by members attracts clubbing provision)

So if you are married and does not have any capital into your HUF, your HUFstill subsists and you can infuse capital by way of gifts.


5/16

HOW CAN YOU INFUSE CAPITAL INTO YOUR

HUF? For an HUF consisting of only husband and wife; which on the date of marriage

does not have any ancestral property or property received on partition of largerHUF can get it only in the form of gifts.

There are two different views expressed by courts: An HUF with only one coparcener can accept gifts in the status of HUF

An HUF with only one coparcener can not accept gifts in the status of HUFbecause the single coparcener has all the rights over the property asIndividual.

To be conservative, you can go with the second view, once a child is born (male/ female) gifts can be taken from anyone within the basic exemption limit everyyear (ideal way would be to take gifts from your father or mother)

Any accretion to the income of HUF is its own property and there are noclubbing provisions for the same.


6/16

HOW CAN YOU TAKE TAX BENEFIT?

Once you are regularly infusing capital into your HUF, your HUF willhave its own property which will earn income in the form of interest,etc.

Income of HUF is taxable in its own hands separately from Individual.

So you can take all the benefits under Income Tax Act, 1961 with respectto the income of the HUF as mentioned in the aforesaid slides while

filing the income tax return of your HUF.


7/16

PRACTICAL ASPECTS

Make a declaration of HUF (an affidavit on a stamp paper of INR 100)

Apply for a PAN card in the status of HUF

Open a separate bank account in the name of Karta on behalf of HUF

Make formal gift deeds in respect of gifts received from relatives ofmember (the source of gift for the donor should also be recorded)

Maintain Separate books of accounts for HUF

Keep the individual money and property separate from those of HUF

File annual return of income for the HUF claiming the benefits


8/16

DOCUMENTS REQUIRED FOR PAN

Proof of Identity of Karta

Proof of Address of Karta

Proof of Date of Birth / Marriage of Karta

For HUF, an affidavit made by the Karta of Hindu Undivided Family

stating name, fathers name and address of all the coparceners on thedate of application and copy of any of the above documents in thename of Karta of HUF is required is required as proof of identity,address and date of birth.


9/16

DOCUMENTS REQUIRED FOR BANK

ACCOUNT: Bank account should be in the name of HUF

Photograph of Karta

Proof of identity, address of Karta

Pan number in HUF's name

HUF Declaration : A declaration form where every member has to make asignature stating the name of Karta and declare They are the only members of HUF.

Karta to have sole authority over HUF account

Every transaction on behalf of HUF account, made by each member of thefamily is governed by karta.


10/16

DOCUMENTS REQUIRED FOR DP ACCOUNT:

Photograph, ID, Address proof of Karta

Bank Statement in the name of HUF, Cancelled Cheque

PAN card of HUF

List of co-parceners in the HUF, along with an authorization given tothe Karta by the said co-parceners to open and operate the DP andTrading accounts.

DP should be HUF DP A/c


11/16

POINT TO BE NOTED FROM

HINDU LAW TO BE KEPT IN

MIND BEFORE IMPLEMENTING


12/16

RISKS INVOLVED:

HUF property can not be transferred by WILL, Karta cannot sell theproperty and dispose the proceeds in his individual desire.

Family can decide mutually for disproportionate distribution among

members by partition through mutual consent.

Any coparcener can ask for partition and equal share from the familyproperty.

In case of court dispute provision of Hindu Law shall apply.

Therefore, there are chances that you may end up spending INR 100 to savetax of INR 30, this aspect needs to be kept in mind while indirectlythrowing personal property into family net.


13/16

GENERAL ASPECTS


14/16

WHY IS AN HUF TREATED SEPARATELY?

Despite being a Secular country, Indian constitution allows Hindus, Muslims,Christians and Parsis to be guided by a separate Personal Law. As such theconcept of HUF is only privy to Hinduism only.

It originated from the culture of joint family status and common assets amongHindus.

HUF is treated as a separate entity (person) under Section 2(31) of the IncomeTax Act, 1961 and section 3 of the Wealth Tax Act, 1961. Many of the tax

exemptions or deductions available to an individual are equally available to anHUF separately under the tax laws.

The Hindu Law contains separate rules for distribution of properties of an HUFdifferent from those for the property of an Individual.


15/16

WHO IS A HINDU?

The term Hindu was originated to designate the countries and populationsituated around and near the river Sindhu, it was first used by Iranians.Persians termed it as Indus, Greeks borrowed it as Indos, English as Indusand Romans as India.

Article 25(2)(b) of the Constitution stipulates that the reference to Hindusshall be construed as including a reference to persons professing the Sikh, Jainor Buddhist religion.

Therefore, the term Hindu under the law means:

A person who is a Hindu by religion, including its various forms like,Virashaiva, Lingayat or Brahmo Samaj, Prarthana Samaj or Arya Samaj;

A person who is a buddhist, Jain or Sikh by religion;

Any other person who is domiciled in India but is not a Muslim, Christian,Parsi or Jew by religion.


16/16

WHAT IS A HINDU UNDIVIDED FAMILY?

In general, HUF means a body of persons lineally descendant from acommon ancestor including their wives and unmarried daughters, who arestaying jointly.

The head of the family who is the eldest male member generally is treatedas Karta of the HUF. Karta is entrusted with the duty of management ofthe HUF assets for the benefit of the family.

Members lineally descended from the common ancestor up to four degreeare Coparceners of HUF. Any coparcener can ask for partition of HUF.

After amendment to Hindu Law in 2005, daughter born in the family alsoacquires same right as son of being a coparcener and continues to be soeven after her marriage.

Wives and mother are members of the HUF but not coparceners.

all about huf's

Documents