What, Why and How of HUF!

Historically, for generations India has been prevailing tradition of the?Joint Hindu Family?or?undivided family consisting of many generations living in the same home, all bound by the common relationship.?As you know a joint family consists of a husband and wife, their sons, their unmarried daughters, and their sons’ wives and children. Family income flows into a common pool, from which resources are drawn to meet the needs of all members, which are regulated by the heads of the family called ‘Karta’. With urbanization and economic development, India has witnessed a break up of traditional joint family into more nuclear-like families, and the traditional joint family in India accounted for a small number of Indian households. However if you are a part of a joint family, I hope this helps you understand the Hindu Undivided Family Act.

What is an HUF?

Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2 (31) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’). HUF is a separate entity for the purpose of assessment under the Act. Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act.

Why is an HUF preferred?

HUF is preferred due to its tax benefits specifically it enjoys a basic exemption of INR 2.5 Lakhs from the income generated through their own business secondly it can also avail of a?Home Loan?to purchase a residential property and get tax benefits up to INR 1.5 lakh under Section 80C of the Income Tax Act for loan repayment and up to INR?2 lakh for interest thereon, thirdly all gifts collected below INR 50,000/- are exempted from Tax.

?How is it created and dissolved?

An HUF can be created in three simple steps i.e.-

(i) Formation of HUF Deed which is to be executed on INR 100 Stamp Paper declaring the name of its Karta, members and the amount of capital to be introduced; (ii) Apply for HUF PAN Card through Application Form 49A and; (iii)?Opening of HUF Bank account after obtaining the PAN Card.

?Dissolution of HUF can be done when there is a partition of HUF’s property. Partition can be done at any time either: on Survival of Karta or?on death of Karta.

?Partition can be effected in any of the following manner-

1.?????By a family settlement or arrangement.

2.?????By division of property done as per the Hindu Succession Act when a coparcener dies intestate and the family chooses to partition instead of continuing as a joint holding according to the custom of survivorship.?

Karta means the head of a Hindu undivided family. He is the person who takes care of day to day expenses of the family, looks after all the coparceners and protects the joint family properties. This member acts like a manager of the joint family and occupies a unique position unlike any other member of the family.

Coparcener is a person who assume a legal right in her/her ancestral property by birth in a Hindu undivided property.

A Partition deed is to be executed for dissolution of the HUF, showcasing the time when it is to take effect and the manner of division.? The deed is to be registered with the sub-registrar according to the jurisdiction of the property. The stamp duty to be applicable is 2 % (two percent) of the amount or the market value of the separated share or shares of the property as per the Maharashtra Stamp Act, 1958.

Although the process is simplified, a legal eye and expertise is much needed in relation to its documentation, formation and dissolution to give it a comprehensive touch.??