What Exactly Is A Hindu Undivided Family?
Hindu Undivided Family- You may learn more about the HUF concept, how it can save you money on taxes, and the laws that apply to HUFs in India by reading this guide. For the aim of reducing income taxes, Hindu Undivided Families, or HUFs, are frequently formed in India. You may learn more about the HUF concept, how it can save you money on taxes, and the laws that apply to HUFs in India by reading this guide.
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What is a HUF?
HUF, which stands for “Hindu Undivided Family,” is an acronym. According to Hindu law, a HUF is a family made up of the lineal descendants of a single progenitor. Their wives & unmarried daughters are included. A contract cannot be used to create a Hindu Undivided Family. In a Hindu family, it develops naturally. Jain, Sikh, and Buddhist families can also create a HUFs in addition to Hindus.
What constitutes a HUF?
Three generations of a family and all of its members may be included in a HUF. It includes the karta, who is typically the male leader of the household, in addition to the coparceners. Daughters continue to be coparceners in their father’s HUF even after getting married. They also sign up for their husband’s HUF.
Women’s place in a HUF
Daughters, like sons, automatically become coparceners in a HUF at birth. They therefore share the same obligations and rights as the sons in a HUF. This entitles them to claim a portion of the HUF properties. The Hindu Succession Act was amended in 2005, resulting in the modification of daughters’ rights. Daughters have previously been HUF members but not coparceners.
Notably, women who join a HUF by marriage are considered members rather than coparceners.
Can a woman serve as a HUF’s Karta?
In a historic decision, the Delhi High Court in 2016 decided that a HUF’s Karta might be one of its oldest members. If a male member of an undivided Hindu family can become a Karta by virtue of being the firstborn, then so can a female member. The HC stated that there is no legal prohibition that prevents the eldest female co-parcener of a HUF from serving as its Karta.
However, income tax officials continue to forbid women from become the Karta of HUFs because there is no explicit regulation to that effect. According to the law, the eldest son of a man succeeds to his father’s position as Karta of a HUF. If the son is a minor, his window will manage the HUF company until the son reaches legal adulthood.
How do you create a HUF?
When a person marries, the formation of a HUF occurs automatically, marking the beginning of a family. However, a HUF deed must be created and executed in accordance with the correct protocol in order to be accepted legally. Any moment is suitable for doing this.
Procedure for create a HUF
Step 1: draught a HUF deed.
An HUF deed lists the names of the HUF’s karta, coparceners, and members and is written on stamp paper.
Step 2: Apply for a HUF PAN card.
On the NSDL website, use Form 49A to submit a PAN card application.
Step 3: Open a bank account in HUF
All funds that the HUF receives or spends must come from this account.
Home ownership status of a HUF
An HUF may be in any of the following residence statuses in accordance with income tax law:
(1) a citizen of and regular resident of India
(2) Resident in India but not a regular resident
(3) non-resident
HUF real estate
An HUF is a legal entity that is capable of holding both movable and immovable property in its name. A HUF’s property, on the other hand, belongs to all the members.
How are HUF’s taxed?
An HUF’s income is shared by all of the family members, not just one person. Because of this, the HUF gets taxed on the income rather than the individual members.
According to Section 2(31) of the Income Tax Act of 1961, a HUF is regarded as a “person.” It files its taxes separately & independently from its members and has a PAN card. According to Indian income tax law, a HUF is taxed at the same rate as an individual.
An HUF must, however, meet two requirements in order to be subject to that type of taxation:
- There ought to be coparceners.
- It must have a shared family estate that comprises of inherited property, property obtained with the aid of inherited property, and property gifted by the family’s members.
What ways does create a HUF aid in tax savings?
Hindu undivided families are granted significant tax benefits since they are regarded as a separate entity under Indian income tax legislation. These advantages go beyond the tax deductions that individual HUF members are qualified for.
An HUF is entitle to claim its own income tax deductions, including those provided under Section 80 C, because it is taxed separately from its members. Additionally, a HUF may deduct expenses in accordance with Sections 54, 54B, 54D, 54EC, 54F, 54G, and Section 47.
- A basic tax deduction of Rs 2.50 lakh per year is available to all resident & non-resident HUFs in India.
- For home loan principal payments, HUF may deduct up to Rs 1.50 lakh under Section 80C.
- They may deduct the interest paid on their mortgage under Section 24B.
- By investing the profits from the sale of any asset other than a residence, a HUF is permitted by Section 54F to deduct taxes on long-term capital gains. To be eligible for the exemption, the taxpayer must only be the owner of one home on the day of the transaction.
- Gifts that total less than Rs. 50,000 are tax-free.
The same investment or expense cannot be written off by both the members and the HUF, though.
HUF benefits Hindu Undivided Family
- To make money, it can operate a business on its own.
- It may make market investments.
- A baseline tax exemption of Rs. 2.5 lakhs are available to HUFs.
- It is exempt from paying taxes if it owns a home.
- It has access to housing loans.
- On premiums paid for health insurance of HUF members, one may claim an additional tax deduction of Rs 25,000. If the member is a senior citizen, the cap rises to Rs 50,000.
Disadvantages of HUF Hindu Undivided Family
- Once a joint family’s income has been classified as a HUF, it will remain that way until the cohabitants decide to separate.
- Since all of the HUF’s members must agree to its dissolution, it might be difficult to do.
- Compared to coparceners or members, the karta has greater abilities.
- The HUF property is divided equally among new family members who are brought into the family by birth or marriage. Even an unborn child can experience this.
- Each member of a HUF will be required to pay taxes on any profits they make if the HUF is dissolved & its assets are sold. This gain is consider their income under the income tax laws.
- The rights of co-owners in a HUF cannot be given away or transfers while the co-owners are still alive. However, they are still able to leave their portion of the HUF assets through a Will.
- A coparcener’s part of the HUF property will transfer to the Class-1 heirs listed in the Hindu Succession Act if they pass away without leaving a will.
HUFs and the impact of Uniform Civil Code
According to media sources, the government may introduce the Uniform Civil Code (UCC) during the next Parliamentary Monsoon Session. The Code aspires to create & implement personal laws of citizens that are equally applicable to all citizens, regardless of their sexual orientation, gender, or religion. The idea of HUF will be eliminate if the UCC is implement.
Most recent judgements
Individuals getting financial support from HUFs as members are not covered by Section 56(2)(VII): ITAT
May 23, 2023: The Surat Bench of the Income Tax Appellate Tribunal (ITAT) has decided that Section 56(2) (VII) does not apply to individuals receiving money from a HUF as its member. The guidelines for taxing income from other sources are outline in Section 56. According to Section 56(2)(vii), any amount receive by an individual or a HUF in a prior year over Rs 50,000 is taxed under the heading “Income from Other Sources.”
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