Demat Account for HUF - A Beginner's Guide

HUFs (Hindu Undivided Family) are a smart way to manage family investments while simultaneously reducing tax liabilities. Since they are separate entities under the Income Tax Act, HUFs have similar rights as individual citizens in terms of trading and investing through demat accounts. 

Many HUFs open a Demat account to deploy family investments in shares, ETFs, mutual funds, etc. There has also been growing interest among families in wealth management under the HUF model, and this has led to a rise in demat account openings in this category as well. Here’s the overview on opening a demat account for HUFs. 

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What is a HUF Demat Account? 

A HUF (Hindu Undivided Family) demat account allows the entity to hold securities like mutual funds, bonds, and stocks while engaging in trading as well. The Karta (family head and senior-most individual) operates the demat account on behalf of the family with the consent of the coparceners, investing combined funds to earn future returns and collectively grow family wealth. 

The HUF is also treated as a separate tax entity with its own PAN and independent return filing. The Karta assumes the responsibility of being the signing authority for the HUF demat account. It is a different model from individual demat accounts, where you can set up your account and trade/hold securities with the same without doing it on behalf of the family or as a collective entity. 

Key Benefits of Opening a HUF Demat Account

Some of the main advantages of opening a HUF demat account include: 

• Tax Efficiency - HUFs may enjoy tax benefits due to their classification as a separate identity, thereby lowering the family’s overall tax burden. 
• Consolidation of Wealth - Investments can be managed collectively on behalf of the family through a single demat account, which is also easier to track. 
• Collective Involvement - The HUF demat account will enable all family members to participate in future wealth creation together under the supervision and guidance of the Karta. 

Documents Required to Open a HUF Demat Account

The documents needed to open a HUF demat account include the following: 

For HUFs without registered KYC: 

• HUF Declaration and Annexures
• PAN cards of the HUF, Karta, and co-parceners/members with self-attested copies
• Address proof of the Karta and HUF
• Bank account proof (statement, cancelled cheque)
• Income proof (last six months’ passbook/bank statement, latest year ITR acknowledgement, latest year audited profit and loss statement, DP holding statement of the entity, or net-worth certificate from the chartered accountant, specifying the UDIN number)
• Self-declaration form and NOC signed by the members/co-parceners if the Karta is female
• Non-individual account declaration form 

If the HUF is KYC-registered: 

• HUF Declaration and Annexures
• Self-attested PAN card copy of the member/co-parcener
• Bank account proof
• Income proof
• Declaration form and NOC if the Karta is female
• Non-individual account declaration form 

If the Karta is an NRI*: 

• Self-attested and notarised copies of Karta’s PAN card
• Address proof of Karta and notarised copy along with self-attested copy of Indian address if it is available 
• Self-attested and notarised copy of valid passport and visa with the place of birth as India. In case of a foreign passport, a notarised and self-attested copy of a valid passport, visa, OCI, PIO, or resident card is required 
• FATCA declaration 
• FEMA declaration 

*Groww, at present, do not provide the facility to open an HUF Demat Account for NRIs

Read More : How to Open a Demat Account for Partnership Firms & Documents Required

How to Open a Demat Account for a HUF - A Step-by-Step Guide

Here is a step-wise guide for opening a HUF demat account- 

Step 1- Choose a broker that provides demat account services for HUFs

Step 2- Gather the Necessary Documents Outlined Above

Step 3- Duly fill the form and submit the necessary documents to the broker 

Step 4- Account Activation - The DP will verify all the documents and activate the HUF demat account likewise

Once the verification is complete, you will receive the Demat account details, post which you can start investing.

Also Read : How to Open a Demat Account for Limited Liability Partnership (LLP) & Required Documents?

Things to Remember When Opening a HUF Demat Account 

Here are the key things worth keeping in mind when opening a HUF demat account -

• Make sure the documents are all valid and the form details are accurate (including relationship with the Karta, date of birth, name, gender, signatures, etc).
• Bank statements or income tax returns of the HUF entity may be needed in some cases
• DPs may also ask for the HUF deed (optional in many cases) along with self-attested copies of the coparcener/member PAN cards
• Make sure that all tax obligations are met, since HUFs are separate tax-paying entities, while adhering to KYC guidelines and being clear about the role of the Karta 
• In-person verification (IPV) may also be required by some DPs and brokers for opening these accounts 
• It is important to find out about the annual maintenance charges and other fees for HUF demat accounts 
• There should be a clearly-outlined investment strategy that is agreed-upon by all the family members at the outset

Read More : How to Open a Demat Account for Partnership Firms & Required Documents?

Conclusion

HUF demat accounts are smart and strategic investment options for family members with a view towards collectively building wealth and managing it better. They are great choices for simplifying family investments in various securities while potentially lowering the tax burden.