Best Money Back Policy 2023 – Check Feature, Benefits and Eligibility for Money Back Policy
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In India, the joint family system has long been prevalent and is also fairly appreciated. The unity among the family members, coupled with their keen desire to help one another brings out the beauty of this ageless concept. In line with the joint family, the concept of a Hindu Undivided Family has been introduced. In this blog, we learn all about it and discuss its key features, benefits, and disadvantages to better understand its implications on the income tax payable.
A Hindu Undivided Family, better known as HUF, essentially refers to a joint family which is considered as an entity separate from the individuals in the family. To better understand what is HUF, begin by knowing that citizens of India who belong to the Hindu ethnic community may decide to save a considerable amount of tax as a family by forming a Hindu Undivided Family meaning HUF.
In this case, the joint income earned by the family members of the HUF does not levy tax on those specific individuals but is collectively imposed as a whole on all the members of the family. The head of the HUF is the one who runs the family business and is referred to as the ‘Karta’ of the HUF. The family may have some ancestral property as an asset or a piece of property acquired by selling the joint family property. Alternatively, it may be a will, gift, or any property that has been donated commonly by the HUF members.
This asset can be secured from income tax imposition by forming a HUF and making a collective tax payment as a family, rather than paying tax individually by each family member. According to the HUF Act, all the members of a Hindu family are legally entitled to be a part of the HUF. These may include wife, children, as well as their wives and children. All male members of the HUF are referred to as coparceners, while the females are called members. Note that a partition of the HUF is only possible on the demand of a coparcener.
As mentioned earlier in the blog, members of a Hindu family (particularly those in a family business or owing a joint property/asset) are authorised to come together and create a HUF account with the intention of tax saving. There are some rules, however, to create the HUF account, which are listed below.
A Hindu Undivided Family can easily form a HUF in 3 simple steps, which are listed below for your easy reference:
The HUF is treated as a legal entity in the eyes of the law once the above steps are duly followed. Deposits can then be made by the HUF members into the account. Also, the amount deposited in the HUF account is not taxable to any individual member of the HUF.
There are some prime benefits to the members of the HUF once they open a common account. Some of these include:
A HUF account has some challenges as well, some of which are listed below:
Summary
HUF can prove to be beneficial when it comes to saving tax or enjoying certain tax deductions under the Income Tax Act. However, like any other Act, the Hindu Undivided Family Act has its set of advantages and disadvantages both. It is important to consider both of them before entering into the HUF Act. Also, for more assistance on specific details of the Act in relation to income tax payment, visit PayBima. Here, you can get free access to the income tax calculator as well for ease of convenience.
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The income tax department can be accessed online by logging on to www.incometax.gov.in
A HUF account can only be created by a family and not just one person. It must comprise a common ancestor and all of his lineal descendants, including wives and unmarried daughters.
Any person born in a HUF gains the legal right over his ancestral property, as per the Hindu Succession Act of 1956.
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