Huf deposits

As HUF is governed by the Hindu Law and not by the Income Tax Act, individuals belonging to other religions are not allowed to form HUF except Jain’s and Sikhs who can create HUF even though they are not governed by the Hindu Law. Two entities are extremely important for you to know in HUF are the coparceners and members.

Coparcener is someone who has the right to demand the share of the property of family; coparceners are generally the Karta (Main decision maker of family, usually the Father, but Manmohan Singh had 5 years ago brought an amendment which stated that Females can become Karta & there can be an all female HUF as well), then sons & daughters, grandsons and great grandsons in order of their first right.

Wife of the Karta is not a coparcener or even spouse are not coparceners and hence can’t demand/ ask for any share in HUF, they are just merely members of HUF.

These are the steps to create capital of a HUF.

• First one should open a bank account with the name of Hindu undivided family like “AJAY HUF” with a stamp, ID Proof and the proof of the members of the family of HUF.
• Important :- While opening a Bank Account in the name of HUF – Banks always ask for a rectangular stamp which states the name of the HUF and also the Karta who is signing it. A round stamp is not accepted as per RBI Circular. The same applies at the time of opening of bank account of Sole Proprietor as well.
• Next is to apply for PAN (Permanent Account Number) of the income tax
• Now transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act, Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.

As HUF enjoys separate tax benefit under sec 80C, one can use the income of HUF for buying Life & health insurance for family and the permissible deductions can be availed for tax purpose in hands of HUF, so if the total premiums for insurance requirement of family is Rs.50,000 per year, then It can go from HUF income and also the individual can exhaust his 1 lac limit separately via PPF, ELSS and other tax instruments.

While all the above points excites people on opening a HUF account immediately and start taking tax benefit, there are some caveats and one has to be little careful. Remember that HUF is a separate entity and represents the whole Family. So once some assets is assigned to HUF, then it becomes part of HUF only and one can be suddenly take money from HUF for personal purpose .

If other co-parceners of HUF demand the partition of HUF only then one can get his/her share of the HUF. Otherwise it will not break. Also for taxation point, a lot of people mislead the tax department buy using fake HUF transactions and therefore, HUF is looked with high degree of scepticism.

If the HUF is not formed properly and if the assets are income are fudged for evading tax, it can get you in trouble, therefore it’s highly advisable to hire a good CA and create your HUF in the best possible manner with right advice. There is no harm in paying 10,000-12,000 to a CA if HUF can give you 5-10 times tax savings.

It would be a great investment, not an expense!