Are you running a family business? or, Are You earning rental income from a common ancestral property? or, Are You earning income from investments made jointly by You along with Your family members?. If Your answers to any of the above questions is Yes, then there are bright chances that You can save a lot of tax by forming a HUF. Read on to find out how.
What is a Hindu Undivided Family?
HUF (Hindu Undivided Family) is a legal entity formed by natural persons. It can be formed with Your own family members like Your Son, Daughter, Father, Mother, Brother, Sister etc. Both male and female members can be included in the entity. Although the Income Tax Act calls it as Hindu Undivided family, HUFs can be formed by non-Hindus as well. Hence, as per the Hindu Law, the following persons are deemed to be Hindus, who can also form a HUF.
5) Nambudri Brahmins
4) Hindus by conversion
5) Hindus by birth, renounced hinduism and have reverted to it after performing religious rites of explanations and repentance.
6) Arya Samajists
8) Santhals of Chota Nagpur
to name a few.
Members of HUF:
Karta: Karta is the head of the family. He manages the HUF and has extensive powers in respect of day-to-day management of joint Hindu family. He is the controller of income and expenditure of the joint family and is the custodian of surplus finances.
Coparceners: Coparceners include the male ancestor and his lineal descendants in the male line within four degrees only, including himself. Hence, it includes himself, his sons, his grandsons and his great-grandsons only. Earlier daughters were not included, but with the enactment of Hindu Succession (Amendment) Act 2005, (w.e.f 9th September 2005), a daughter of coparcener shall also by birth become a coparcener in her own right, in the same manner as the son. Thus, coparceners can be sons or daughters of the family by birth and does not include a male coparcener's wife or femlae coparcener's husband. Also the son of great-grandson of the coparcener cannot be called a coparcener, since only members upto four degrees are included. But they can be members of HUF.
Members : It includes the Karta, Coparceners and other Members of the Hindu Undivided Family. All Coparceners are Members, but all Members are not Coparceners
How does the difference matter?
Ans: A Coparcener can demand partition of HUF, whereas a Member cannot demand partition.
What will be the legal name of any HUF?
Ans: The legal name of a HUF will be Karta's Name(HUF). For Example if Mr.Neerav Patel is the Karta of a Hindu Undivided Family, name of the HUF shall be Neerav (HUF). This name appears on the PAN card and year on year, the Income Tax Returns will be filed in this name.
What are the Documents required to start a HUF?
Ans: Only three documents are required to start HUF. They are listed below.
What is the Income Tax Slab for HUF?
Ans: The tax rates applicable to a HUF is the same as an Individual below 60 years of age. Below is the tax rate for HUFs for the Assessment Year 2018-19.
Contact Your CA today to find out if forming a HUF will be the suitable option for your business.
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