A Hindu Undivided Family (HUF) is a legally recognised and effective tax-saving structure under Indian income tax laws that helps families in income distribution and wealth management. Treated as a separate taxable entity, an HUF can earn income, hold assets, and claim deductions under provisions such as Section 80C, Section 80D, and exemptions on capital gains.
HUF is treated as a separate taxable entity from its . Family income can be legally divided and reported under the HUF to avail additional tax advantages.
An HUF gets a separate basic exemption limit of ₹2.5 lakh under the old tax regime and ₹4 lakh under the new tax regime.
What is an HUF?
• HUF stands for Hindu Undivided Family.
• It is recognised as a separate legal entity under the for taxation purposes.
• It is considered one of the legal tax planning tools available to joint families in India.
• An HUF can own assets, generate income, and avail tax benefits separately from its members, thereby helping reduce the family’s total tax burden through legal income splitting.
• The person managing the HUF is known as the Karta, while other eligible family members are known as coparceners.
Who can form an HUF?
• Buddhist, Sikh, and Jain families are also eligible to form an HUF.
• An HUF cannot be formed by a single individual. At least two members are required.
• A family must have lineal ascendants and descendants to constitute an HUF.
• An HUF can also come into existence after marriage.
Who can become members of HUF?
Members of an HUF include a common ancestor and all lineal descendants, along with their wives and unmarried daughters. The members are classified as follows:
• Karta: The Karta is the head of the HUF, generally the eldest male or female member, responsible for managing the family affairs and bearing unlimited liability.
• Coparceners: These include all male and female lineal descendants of a common ancestor, including daughters by birth. Coparceners have equal rights over HUF property and can seek partition of the HUF.
• Other Members: Wives of coparceners become members of the HUF after marriage but are not treated as coparceners. They are entitled to maintenance but cannot demand partition of the HUF property.
Only coparceners have the right to seek partition of the HUF, while the Karta remains fully liable for all HUF obligations, including tax liabilities.
How to form an HUF
Creating a Hindu Undivided Family is straightforward and mainly involves preparing an HUF deed, obtaining a PAN card, opening a bank account, and transferring assets to the HUF.
Step 1: Create an HUF Deed
• The first requirement for forming an HUF is drafting an HUF deed.
• The deed should mention the name of the Karta, names and details of coparceners, date of formation, details of the HUF corpus, sources of funds, and other relevant information depending on the case.
Step 2: Apply for a PAN Card
• PAN application for an HUF can now be completed online.
• The Karta must submit Form 49A along with the necessary supporting declarations and documents.
• In most cases, the PAN number or digital PAN is generated within 48 hours of submitting the application.
Step 3: Open an HUF Bank Account
• Once the PAN is issued, a bank account can be opened in the name of the HUF to carry out all financial transactions.
• The HUF deed, PAN card, and KYC documents are generally required for opening the account.
Step 4: Transfer Common Assets to the HUF
• Assets intended to belong to the HUF, including property, cash, investments, or other common family assets, can then be transferred to the HUF account and managed under the HUF structure.
How to save tax through HUF?
One of the biggest tax advantages of an HUF is that the basic exemption limit and deductions under Chapter VI-A are available separately to the HUF. By creating an HUF and separating certain family income from individual income, taxpayers can claim tax exemptions and deductions both individually under their own PAN and separately through the HUF PAN, thereby reducing the overall tax liability legally.