HUF or Hindu Undivided Family is a legal entity which can be formed by Hindu family by the family members coming together and putting together the assets. Other than Hindus, Sikhs, Jains and Buddhists can also form a HUF.
The roots of HUF go back into the Hindu Law. It consists of males of a family lineally descending from a common ancestor. The members of the family are not restricted just to sons but also includes unmarried daughters and the spouses of the sons. Because of its unique nature, the HUF’s relations merge from the status and not from any legal contracts.
Though HUF is automatically created at the time of marriage but businessmen use it for saving taxes and because of lesser requirements for compliance that help them with smoother working. Another important thing to note here is that a HUF is taxed separately from the members of HUF.
Prerequisites to Form HUF
Compliance with the understated requirements is must in order to have a HUF:
- Name
It should have a name because HUF is a separate entity, it should have a name.
- Capital
Ancestral property, assets received through will, assets gifted by friends or relatives can be used to form HUF because capital is an important prerequisite for setting up any business entity.
- Members and Their Religion
Only a Hindu, Jain, Sikh or Buddhist married couple can form a HUF whose child or children will be integrated into it after the birth. There is a Karta (the male head with decision making responsibility), coparceners (who are entitled to share of property) and members. On death of sole male member in the family, the existing female members will continue with functioning of HUF. And an adopted child can become a member but not a coparcener.
- HUF Deed
Formation of HUF doesn’t depend upon a legal deed but having a deed is a legal proof that the entity exists. It should include a declaration by family member along with name and authority of Karta, capital invested in forming HUF etc.
- Separate PAN and Bank Account
Under Form 49A, application for PAN for HUF can be submitted. This requires HUF deed and is important for financial transactions, filing ITRs and claiming deductions. PAN and ITRs have signatures of Karta. Likewise, a separate bank account of HUF is must to maintain funds which must only be required for business purpose.
Use the format for Declaration for Creation of HUF to form your own HUF. Easy to download declaration for HUF in MS Word format for families to have a well-formed HUF which can be used for carrying out business and saving on taxes.
Click Here to Download Format for Declaration for Creation of HUF