HUF is the acronym to Hindu Undivided Family. An HUF can be formed by members of a family, wherein the members are lineal ascendants or descendants of Hindus, Buddhists, Jains, and Sikhs religions. The eldest member becomes the Karta of HUF. Other members of the family are called coparceners. The coparceners share equally with the other members of the family with regard to inheritance of an undivided estate or in the rights to it. Till 2005, daughters were not coparceners of their father’s family (only sons, used to become coparceners on birth). The female members were only members of the family on birth and ceased to be members of their father’s family after their marriage. The 2005 amendment to Hindu Succession Act 1956 gave equal rights to daughters as to the sons. The said amendment allows the daughters to become coparceners or Karta of their father’s family on birth in the same manner as sons, and have the same rights as sons in the family properties.
An HUF needs to have income generating assets out of the inheritance of an undivided estate or through gift or will. The name of the HUF is usually registered in the name of Karta followed by the word HUF. For example, if Mr. Ganesh Jain is the Karta of an HUF. The name of the HUF will be Ganesh Jain HUF.
Reasons for opening HUF account
HUFs are treated as separate entities, with separate PAN and get tax benefits under various sections of Income tax act 1961. The main advantage is that the income earned through HUF will not be clubbed with a member’s individual income for assessment of his/her tax liability. Thus, the concerned individual gets away from paying tax at higher slab rates or the income shown under HUF may be fully exempt from tax.
Opening Bank Account:
Bank account can be opened in the name of HUF with the following details
- Photograph of Karta
- Proof of identity and proof of address of the Karta (same as KYC applicable to individuals)
- PAN number in HUF’s name/Form 60 of HUF
- Declaration signed by Karta and by all the major coparceners of HUF. The declaration shall state that the bank account is vested in the hands of the Karta and he has the right to govern all the transactions of the HUF accounts on behalf of the family members.
- Rubber stamp in the rectangular format (the name of HUF, down as Karta with a gap for the signature of the Karta).
- HUF deed (not mandatory for the opening bank account) written on a stamp paper. The deed shall state the name of the Karta (Manger) of HUF and all the coparceners of the HUF. The deed shall also state the various sources of its capital with which the HUF has been initiated. Such deed is useful
NOTE: The partner should be a natural person or legal person as in the case of companies registered under companies Act 1956. However, H.U.F is not a ‘person’ as it is a group of persons of the same family carrying on the family business. Hence an H.U.F cannot be a partner of a partnership firm.