Hindu Undivided Family

Hindu Undivided Family

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Hindu Undivided Family - Process, Procedure, Document Required, Fees, Eligibility, Duration

The Hindu Undivided Family (HUF) is a type of family business in which all those who are directly descended from a common ancestor, as well as the male descendants' spouses and daughters, are members. A HUF is a separate entity from its members. Apart from the members, the company has a PAN and files tax returns. A person can form a HUF with his wife and children to take advantage of special tax breaks.

A HUF can be established by a family. It is made up of the 'Karta,' or eldest or head of the family. The 'karta' is in charge of the day-to-day operations of the HUF. Coparceners are the other members of the family involved in this type of business. The family business can be dissolved by a partition if all members agree. Assets will be distributed to members following the partition.

Features of HUF

  • The Hindu Undivided Family is also known as a family. HUF is a legal entity in which the business and the people are separate entities.
  • The Hindu Undivided Family is governed by Hindu law.
  • The 'karta,' who makes all major decisions, governs the HUF.
  • After the death of the common ancestor, including the 'karta,' the business survives. The family's next eldest member becomes the 'karta'.
  • The HUF exists even after all of the male members have died.
  • Although Jain and Sikh families are not subject to Hindu law, they are permitted to form HUFs.
  • HUF members include men and women, as well as children.

 

Pros of HUF

  • The HUF is entitled to tax deductions and exemptions because it is taxed separately from its members.
  • The HUF's revenue from assets and enterprises is assessed separately. The family's tax liability is reduced as a result.
  • The existence of a HUF is indefinite. Even the death or retirement of one of the members, or the 'karta' himself, has no impact on the operation of the business.
  • Except for the 'karta,' the liabilities of all other members of the HUF are limited to their portion of the property only.
  • There are no legal formalities to deal with when forming a HUF.

Cons of HUF

  • The HUF members have equal access to the property. The property cannot be sold unless all of the members agree.
  • The liability of the ‘karta’ is infinite. In the event of bankruptcy, Karta's personal property can be used to repay the business debt.
  • The HUF consists solely of family members with limited resources. With limited capital, HUF's chances of expansion are slim, limiting its scope of operations.
  • When a HUF dissolves, its assets are distributed among its members, which can lead to a slew of disagreements and legal wrangling.

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Hindu Undivided Family Frequently Asked Questions

HUF is formed by family members descended from common ancestors. When a family member marries, the HUF is automatically created for them. Children inherit their father's HUF. When a daughter marries, she becomes a member of her husband's HUF while remaining a member of her father's HUF. A legal deed is required for a HUF. The deed must include information about HUF members as well as the HUF's business. Once the HUF has been registered, a PAN number and a bank account should be opened in its name.
Putting together a family unit and pooling assets to form a HUF can help save money on taxes. Because the HUF is taxed separately from its members, it can claim deductions or exemptions. Families with ancestral properties and businesses establish a second PAN in the name of the company. This is done to assess the HUF's income from assets and enterprises separately. This lowers the family's tax liability.

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