The expression “Hindu Undivided Family” has not defined under the Income Tax Act or in any other statute .HUF stands for Hindu Undivided family governed under Hindu law board and could be formed by a married couple or by members of a joint family. HUF could be formed by two members, at least one among whom should be a male member of the family. Senior most male member of the family would become ‘Karta’. Although it is governed by the Hindu law board, it can be formed by Jains, Sikhs and Buddhists as well. Membership into a HUF does not come from a contract but from status under hindu law.
The essentials are:-
(i) One should be Hindu, Jains,Sikhs and Buddhists are considered as Hindus but not Muslims or Christians
(ii) There should be a family i.e group of persons – more than one and
(iii) They should be undivided i.e living jointly and having commonness amongst them.
All these three essentials are cumulative. It is a body consisting of persons lineally descended from a common ancestor and includes their wives and unmarried daughters, who are living together, joint in food, estate and, worship (not now necessary). The daughter, on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband’s HUF. However, after 1-9-2005, daughter married or unmarried, is a coparcener like a son.
Here are the legal formalities involved in forming an HUF.
Incorporation of HUF
Use a capital asset to establish the corpus of the HUF. This can be ancestral property, assets gifted by relatives and friends, or received by the HUF through a will. If you give a personal asset to the HUF, the income will be clubbed with your own. Gifts of over 50,000 a year received by HUF will be taxable. The best way is for the HUF to receive assets as part of a will.
You have to prepare a deed on stamp paper declaring the formation of the HUF. It should have all the details, including the name of karta, co-parceners , address and source of funds in the corpus. Once the declaration deed is made, the karta should apply for a permanent account number (PAN) for the HUF. This is mandatory because all financial transactions must carry PAN.
After you are allotted a PAN, open a bank account in the name of the HUF. It is also advisable to get some stationery printed for official communication. The HUF is now functional . The karta will have to invest in taxsaving instruments and file tax returns on behalf of the HUF.
Though creating and registering an HUF is fairly easy, complications may arise later.
KEY POINTS IN CREATION OF HUF AND FORMAT OF DEED FOR CREATION OF HUF
For example, if you are in 30% tax bracket, then approx tax saving by creating an HUF will be as follows:-
Basic exemption up to Rs. 2,50,000 = nil
Rs. 2,50,000-5,00,000 @10% = Rs. 25,000
Rs. 5,00,000-10,00,000 @20% = Rs. 1,00,000
80C deductions Rs. 1,50,000
Therefore total tax payable for HUF on income of Rs. 6,50,000 is only Rs. 25,000.
If this income of Rs. 6,50,000 is taxed in individual hand @ 30% tax due is Rs. 1,95,000.
Hence, you can save a total of Rs. 1,70,000 by creating an HUF and transferring ancestral property income and other income under HUF.
FORMAT OF HUF CREATION DEEDS
I, ____________________________ son Of ___________________________________ Residing at ____________________________________________ aged ___Adult do hereby declare-
That I am Karta of ____________________________________________
That I received on behalf of the H U F gift of Rs. ___________ by way of CASH/CHEAUE from my FATHER ________________________________(name of relative of karta of HUF) on dt. _______________ this formed the corpus of the HUF.
That the HUF at present is consisting of the followings members-
I) Shri _____________________, Adult, Residing at _________________
II) Smt. _____________________, Adult, Residing at _________________
III) Kumari _________________-Minor, Residing at ___________________
That the above statements are true to the best of my knowledge & belief. Declare this on _________________
1. ————————————– ————————————
2. ————————————– ————————————
DECLARATION OF GIFT MADE BY ________________________
TO THE HINDU UNDIVIDED FAMILY OF ___________________
I, _____________________________, residing at _______________________ ____________________________________________________________, do hereby declare and affirm as under:
1. That out of natural love and affection borne by me towards the Hindu Undivided Family of ______________________________, I have made a gift of Rs.______ (Rupees _________________ only) as per the following details:
By Cheque No.________, dated __________, drawn on Bank ____________________, ________________ Branch, in favour of ________________________ HUF.
2. The above Gift has been duly accepted by ________________________, as Karta of his Hindu Undivided Family and has been duly acknowledged hereunder.
3. This Declaration of Gift is made to record the fact that I have made this Gift in favour of the Donee as above, who now has the absolute right, title and interest in the gifted amount.
Date: ___________, 200__ ___________________
(Signature of the Donor)
ACKNOWLEDGEMENT OF GIFT
I, ________________________, hereby acknowledge having received the above gift made to my Hindu Undivided Family by _________________________.
Date: ___________, 200__ ___________________
(Signature of the Donee as Karta of his HUF)
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