The formation of a Hindu Undivided Family, or HUF, is quite common in India for the purpose of reducing income taxes. Our Blog will assist you in comprehending the concept of HUF.
What is an HUF?
A Hindu Undivided Family is a group of people who are all lineally descended from a common ancestor, including their wives and unmarried daughters. Section 2(31) of the Income-tax Act of 1961 treats Hindu Undivided Family as a person. For the purposes of assessment under the Act, HUF is a separate entity. A HUF cannot be formed through a contract; it is formed naturally within a Hindu family. Even though Jain and Sikh families are not governed by Hindu Law, they are treated as HUFs under the Act.
How to form an HUF?
HUF cannot be formed by a single person; it can only be formed by a family.
At the time of marriage, a HUF is automatically created.
HUF is made up of a common ancestor and all of his direct descendants, including wives and unmarried daughters.
HUFs can be formed by Hindus, Buddhists, Jains, and Sikhs.
HUF typically has assets that include gifts, bequests, ancestral property, items purchased from the sale of joint family assets, or items that HUF members have donated to the common fund.
A HUF must be formally registered in its name once it is formed. A legal deed is required for a HUF. The deed must include information about HUF members and the HUF's business. In the name of the HUF, a PAN number and a bank account should be opened.
Advantages
It can generate income by running its own business.
It has the ability to invest in the market.
HUFs are exempt from paying basic tax of Rs 2.5 lakhs.
It is not required to pay taxes if it owns a residential property.
An additional tax deduction of Rs 25,000 can be claimed on premiums paid for HUF members' health insurance. If the member is a senior citizen, the limit rises to Rs 50,000.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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