Many of you hear lot of about HUF or Hindu Undivided Family and some of you might ask question How Can One Start or Set Up An HUF?
Before we discuss how to set up HUF let us first know what HUF Is? In India there were some family business run by all family member. No outsider is allowed to enter the business and full business is carried out by family members.
There was 2 kinds of HUF exist in India :-
- Dayabhaga :- It allows both male and female members as coparceners of the business, this is only applicable in West Bengal and Assam,
- Mitakshara :- This states that only male members can be coparceners of the business.
But Hindu Succession (Amendment) Act 2005 has given equal rights to the newly born daughters that she acquires equal right and has equal share and will be treated as coparceners same as male member is treated.
How to Set Up HUF ?
Generate Capital :-
To set up an Hindu Undivided Family (HUF) you first need to collect capital for it. If you throw your own personal asset to the HUF then income from it will be clubbed with your income.
The best way to get capital for any HUF is to get money or asset through will of your father or as gift. If any of your relative gives you gift of more than of Rs 50,000 then it will be taxable [u/s 56]. So best way is to get capital as will from your father or anyone else.
Make A Deed :-
Now you had capital which can allow you to set up and start Hindu Undivided Family (HUF), but before HUF is created you/ Karta has to create an deed which should be made on Stamp Paper, which clearly declares :-
- Who is the Karta of HUF,
- Who are its members,
- How you had got capital,
- How much capital you had got and when and how (Cash or Cheque)
- Signatures of witness.
Apply For PAN Card :-
All transaction in Hindu Undivided Family (HUF) is carried with the name of Karta and by his approval, even all bank transactions are also carried in the Name of Karta, Karta will file Income Tax for HUF, so he should apply for an PAN [Permanent Account Number] Card
Open Bank Account :-
Now Karta has an PAN so he should open a bank account which will carry all financial transaction of Hindu Undivided Family (HUF), Now HUF is ready to do its business and Karta will take all decisions for HUF. Karta should File Income Tax on behalf of HUF regularly.
Tax Benefits For HUF :-
Now big question arises what are the Tax benefits are allowed for any Hindu Undivided Family (HUF)? So lets take them one by one :-
- HUF will be taxed as an Individual not as company :- As in HUF you are doing business and has members too but still the tax slab for HUF is as same of an Individual not of any Joint Stock Company.
- If an individual is getting income of 180,000 from HUF and 180,000 as personal income than it will be treated as separate income and tax slab is also applicable separately, means individual will get exemption of Rs 180, 0000 for HUF income and Rs. 180, 000 exemption for personal income.
- Individual will be entitled for exemption under Section 80C for LIC, PPF and so on separately for HUF and Individual.
- If any individual income is eligible for Wealth Tax Act 1957 then he will get exemption of Rs. 100,000 separately on HUF income and personal income.
- If Karta or members get any remuneration for rendering there services for family business then it will be entitle for exemption,
- Deductions u/s 80CCF and 80D will be applicable separately as 80C is done.
Some Points must be kept in mind In HUF business :-
- The bank account should be opened in the name of Karta or HUF only,
- Karta is allowed to sign in all bank transaction, however he may permit other to sign,
- Its not necessary to have 2 male members to start HUF, one male and 2 female members can also start HUF,
- HUF can be run by female members if last male member dies,
- Hindu Undivided Family (HUF) can be started by anyone who is Hindu by nature like Brahmin, Sikh, Arya Samaj, Jain, Buddhist etc.