(BUSINESS DEVELOPMENT MANAGER)
17 September 2019
A Hindu Undivided Family (HUF) is a kind of an entity that could be a launching pad to the entrepreneur who wishes to have a smoother foray into the world of business, thanks to the tax benefits and lesser compliance requirements.
HUF is a unique type of legal entity which derives its roots from Hindu Law. HUF is an entity as a family, which consists of male lineally descended from a common ancestor. The members of the family would also include their spouses and unmarried daughters. Given the nature of the entity, the relation of HUF’s arises from status and not legal contracts. This article seeks to guide the aspiring entrepreneur on the formation of a HUF.
HUF may be formed with or without a legal deed, though it is always advisable to pursue a business with a written document. With respect to a HUF, a legal deed consists of details pertaining to membership of the HUF, the source of funds, and the likes of it. The Deed acts as a proof of existence of the entity that has been formed.
The document should include a declaration by a family member with respect to the name of the Karta, powers vested with the Kartha, and the entitlement of the Kartha to hold the transactions on behalf of its members. In addition to it, the document should state the capital that was invested in forming the HUF.
Followed by the formation of a deed, the Karta is required to obtain a pan card, which is an important document for pursuing financial transactions. The application for PAN must be made in Form 49A, either online through the NSDL website or through manual means.
The PAN Card must be used by the entity for the filing of income tax returns and claiming applicable deductions. The application for PAN and income-tax return should consist of the signature of the Karta.
Separate Bank Account
As implicit as it might sound, it is mandatory for a HUF to function with a bank account, wherein the funds of the entity can be maintained. The bank account must be strictly maintained for business purposes, and shouldn’t include the savings of any member.