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Home / Registrations / HUF Formation
HUF is not defined under income tax act but it is same as defined in Hindu law. As the name suggest, this is for Hindu families only, however buddhist, jain, sikh are counted as hindu only for the purpose of formation of HUF.
Hindu Undivided Family ('HUF') is treated as a ?person? under section 2(31) of the Income-tax Act, 1961. That implies that it is a separate entity in the eyes of law. Separate Income Tax Return has to be filed for HUF also.
Dissolution:
Perhaps the most terrifying aspect about starting a HUF is shutting it down. A partition is the sole way to dissolve a HUF.
To disband the HUF, all members must agree. Assets are dispersed to members under a division, which can result in a lot of disagreements and legal headache.
Unless a partition occurs, you must continue to file the HUF's tax returns after it is constituted. Any partition claim must be filed to the assessment officer.
When the assessing officer receives such a claim, he or she must conduct an investigation after notifying the members. The revenue from the partitioned property is taxed as the member's individual income.
The revenue from the property transferred from the original HUF is taxed in the hands of the new HUF if the member creates another HUF with his wife and children.
The greatest disadvantage of opening a HUF is that its members have equal rights on the property. The common property cannot be sold without the concurrence of all the members.
Any additions to the family, by way of birth or marriage, become a member of the HUF and get equal rights. A HUF can get too large to manage.
A HUF can be formed with just two members one of whom is a coparcener. But for an entity to be taxed as a HUF, it should have at least two coparceners. For instance, if HUF consists of only the husband and wife, then there is only one coparcener. So it will not be taxed in the hands of HUF except in the case where the funds are received on the partition of larger HUF. It will be taxed in the hands of a sole coparcener.
The HUF being a separate taxable assesse, can claim a deduction under section 80C. However, the member and the HUF cannot claim a deduction in respect of the same investment made or expense incurred.
It is not necessary that a HUF must always be a resident of India. In case the control and management of the HUF are situated outside India, the HUF would be a non-resident. Where the affairs of the HUF are managed from outside India, the HUF would be a non-resident.
Upon the demise of Karta, the eldest male member of the family becomes the Karta of the family. Even when the deceased Karta’s wife is alive, the eldest son or any other eldest male member of the family will take over that position.
The head of a HUF is called the Karta; he is the senior-most male member of the family.
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