What is a HUF or Hindu Undivided Family?

A HUF or Hindu Undivided Family (HUF) consists of all person lineally descended from a common ancestor and includes their wives and unmarried daughters. Usually, a joint Hindu family would consist of a male Hindu, his wife and his unmarried daughters. The daughter ceases to be a member of her father’s family on marriage and becomes a member of her husband’s family. However, the existence of a joint estate is not an essential requisite to constitute a joint family. A joint Hindu family or Hindu Undivided Family can also consist of a single male member and widows of deceased male members.

Requirement to Form HUF

A Hindu Undivided Family must consist of atleast two members to constitute a joint family. The existence of estate or property is not an essential requirement to form a Hindu Undivided Family. Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family.

Note: Jain and Sikh families  though are not governed by the Hindu Law, can be treated as a HUF for Income Tax purposes.

HUF under Income Tax Act

A HUF is recognized under Income Tax Act as a separate assessable entity if two conditions are satisfied:

• There should be a coparcenership. 
  • Coparcenery is joint inheritance or heirship of property. Coparcenership is said to exist in a Hindu Undivided Family if the right to joint enjoyment, the right to call for partitition and the right of survivorship is held in coparcenary.
• There should be a joint family property which consists of ancestral property, property acquired with the aid of ancestral property and property transferred by its members.
  • Ancestral property is any property which a man inherits from any of his three immediate male ancestors, i.e. his father, grandfather and great grandfather. Property inherited from any other relation is not treated as ancestral property.

Finally, it is important to note that once a joint family income is assessed as that of HUF, it continues to be assessed as such in subsequent assessment years till partition is claimed by coparceners.

Benefits of Forming HUF

One of the major benefits of forming a HUF is that a HUF is considered a separate legal entity and is thus eligible to obtain a PAN card and have a bank account opened in the name of the HUF. A HUF can be easily formed and once formed, the “karta”, usually the oldest male head of the family, is provided additional basic tax exemption of Rs. 1.8 lakh per year, along with the benefit of lower tax slabs, i.e, 10% tax on income up to Rs. 5 lakh and 20% up to Rs. 8 lakh.

To create a HUF in India, visit IndiaFilings.com