What is HUF & Benefits?
What is HUF (Hindu Undivided Family)?
Under section 2(31) of the Income-tax Act, 1961, a HUF (Hindu Undivided Family) is a family unit consisting of lineal descendants of a common ancestor. It is a separate tax entity treated as a “person” and can be formed by Hindu, Buddhist, Jain, and Sikh families.
A HUF includes
- “Karta",
- “Coparceners”, and
- “Members.”
The family head of HUF is known as the “Karta.”
“Coparceners” include individuals within four generations of the Karta who acquire an interest in the joint family property by birth. They can demand a partition and an inherent share in the joint family property.
“Members” include all individuals who are part of the family unit but do not have the coparcenary rights.
Initially, only male members were considered coparceners, but after the 2005 amendment to the Hindu Succession Act, daughters were granted equal coparcenary rights.
While individual family members have their own PAN cards, the HUF is assigned a separate PAN card. This distinct identity allows HUFs to engage in various financial transactions and open HUF demat account to invest in financial securities.
Marriage Implication On HUF
When a male member marries, his wife becomes a member of the HUF. However, she does not acquire the status of a coparcener because coparcenary rights are only given to lineal descendants of a common ancestor within four generations. Also, she has no right to demand partition or claim an independent share of her husband’s HUF property. Upon marriage, the children born by the couple automatically become coparceners of the HUF.When the daughter gets married, she continues to hold coparcenary rights in her father’s HUF and becomes a member of her husband’s HUF.
Benefits of HUF
Creating an HUF has several benefits, particularly in terms of tax savings and wealth management.
Tax Savings
A HUF is taxed at the same slab rates applicable to individual taxpayers.
- Because HUF is treated as a distinct taxable entity, the basic tax exemption of ₹2.5 lakh is available on the total taxable income. This is over and above the income tax benefits you and your family members already enjoy individually.
- Further, the income from the below sources is excluded from HUF taxation.
- Income from property transferred by a member to the HUF without adequate consideration.
- Income from a woman’s personal property ("stridhan").
- Income from an impartible estate is taxable for the estate holder, not the HUF.
- HUF can claim deductions under Sections 80C, 80D, and other provisions of the Income Tax Act, just like an individual taxpayer.
- Income from ancestral properties or businesses can be taxed under the HUF to reduce the taxable income of individual family members.
Wealth Management
HUF allows for the joint management of family wealth. Ancestral assets such as properties, businesses, or investments can be managed under one umbrella entity.
Open a HUF Demat Account
HUFs can open a separate demat account other than their individual demat account.
This can be used to
- Invest in different securities like stocks, mutual funds, bonds, ETFs, etc.
- Apply in IPOs (Initial Public Offerings).
The income earned from investments made through the demat account is taxed separately from individual members' income. To open a HUF demat account with Groww, follow the step-by-step procedure below.
- Fill out the form here.
- Our team will get in touch with you for document verification and sign-up on Groww.
- Once the documents are verified, we will send you an account opening form, which you need to send back to the Groww team with HUF Seal & Signature.
How To Create HUF?
The process of HUF creation starts with the creation of a HUF Deed, which includes
- Declaration by family members stating the creation of the HUF,
- Names of the Karta and all coparceners (members),
- Details of contributions made by family members.
Next, fill out Form 49A online to apply for a HUF PAN card.
Open a separate bank account under the name HUF. This account will be used for all financial transactions, including investments and income the HUF earns.
Conclusion
Creating a HUF provides a structured way of managing family wealth and leveraging more tax benefits. Under Indian law, it is recognised as a separate legal entity that allows families to pool resources, manage ancestral assets, and reduce their tax liabilities.