Hindu Undivided Family (HUF) is not defined under the Income Tax Act but is covered under the Hindu Law. It consists of all persons directly descended from a common ancestor, and also the wives and daughters of the male descendants. It can act as an effective tax saving instrument & is recognized all over India except Kerala.
The Hindu Undivided Family is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961, for the purpose of assessment under the Act & has its own Permanent Account Number (PAN) and files tax returns independent of members.
It is not formed by a contract but by the status of a family i.e., it is created automatically in any Hindu Family.
FEATURES OF HUF
- Only one member or co-parcener cannot form an HUF
- Formation of HUF is allowed for both residents of the country and for Non-Resident Indians (NRIs). This depends upon where the HUF is residing.
- HUF is automatically created for the newly added member in the family at the time of their marriage.
- Buddhists, Hindus, Sikhs, Jains are able to form a HUF.
- It often has assets which come as will , gift or ancestral property.
- HUF’s have to pay income tax every financial year & its audit is required if the annual turnover exceeds Rs 25 lacs per annum.
MEMBERS OF HINDU UNDIVIDED FAMILY
All the persons in the family including wife, children,unmarried daughters etc can be members of HUF. The male members are called co-parceners while the female members are called members. The senior most male member of the family is known as “Karta” & he is responsible for managing the affairs of the family.
HUF FOR TAX SAVING
One can save taxes by creating a family unit & pooling in all the assets to form a Hindu undivided family.
Since, a HUF is taxed separately from its members, therefore deductions us 80 or exemptions allowed under tax laws can be claimed by it separately.
After building the HUF, the members falling under it will not have to pay tax individually . This will significantly reduce their tax burden.
Thus, in simple words a Hindu Undivided Family, commonly known as HUF is a separate entity from its members for the purpose of Income Tax assessment & consists of all persons lineally descended from a common ancestor including their wives and unmarried daughters.