Hindu Undivided Family (HUF) comprises of wife, husband and children, who are living together. Within it, children’s spouses if living together are also included. The property that this family owns is usually either through lineage or through ancestral. There is a special law in India for this set up of family and this comprises of laws relating to taxation, marriage and ownership of property. The laws pertaining to HUF have their own merits and demerits and in this article we would discuss about the same. HUF families are lead by the senior most male member, who is known as the Karta of the HUF. In other words, we would also call this Karta as the manager of the family, according to who the entire family runs.
HUF Accounts – Features
As per the laws, HUFs can have an account in their name, which is simply a corpus created to run the expenses of the family. The corpus in the account comes from unequal contributions from the family members, as set by the Karta of the family.
The Karta or the Head of the Family runs the account and his signature would be required for any transaction happening on the account. The accounts are opened under the name of HUF; however, they are similar in nature to that of a saving bank account. Having an HUF account brings several tax benefits for the account holders.
HUF accounts are a little different than a normal saving account in following ways:
- Each member of the HUF deposit a certain part of their income in the corpus account
- The entire family participates in the operation of the account; however, the authority remains with the Karta of the account
- Under various sections, each member avails tax benefits for the contributions made under an HUF account
- At any point in time, if all the members agree, the corpus amount can be divided among the family members based on their mutual agreement
How to open an HUF Account?
An HUF account can be opened in any bank, with necessary documents required. Following is the list of documents that are required at the time of opening an HUF account:
- PAN Card of HUF along with the PAN card of Karta is required. For those HUF’s who have not got their HUF PAN Card made can apply for one.
- A common declaration has to be attached, where in each member of the family states and signs that they voluntarily declare Karta as the caretaker of the account. They need to declare that any transaction happening on the account would be under the authority of the Karta.
- Address proof of Karta
- Identification proof of Karta
These are general documents required for opening an HUF account. Specific banks can ask for few additional documents in certain cases.
Benefits of HUF Account
Since the account comes with a purpose, HUF account enjoys a lot many benefits, especially in terms of tax benefits. These benefits are bestowed upon such accounts just to make sure that families and people stay connected to their roots and the societal system runs in a smooth manner. Following are the advantages of HUF.
- One of the main advantages of an HUF is that the family gets the benefit of having an extra PAN number and thus can avail extra tax benefits. This is why most of the chartered accountants advise their clients to open an HUF account.
- HUF accounts enjoy tax rebates under sections 80C, 80L and 88 of Income Tax
- HUF account is also beneficial in terms of saving taxes on gifts.
- The corpus that is generated in HUF account can further be used for investing in tax saving instruments.
Disadvantages of HUF
Disadvantages of HUF lie more in terms of personal insecurities. Since, the social structure of families are changing, there are insecurities attached with each family members within the family. Every member believes that he is contributing more than others and that the benefits are not in proportion to the contributions.
- If the insecurities arising in the minds of families members results to corpus account being empty, the account may become inactive
- If at any point in time, any of the members wants to part ways from HUF account, the process involved in separation and distribution of corpus is quite tedious and problematic.
- If an HUF adopts a child in the family, he/she can be a member or contributor of the account, however, he/she can’t ask for partition of the HUF account
- The assets of an HUF are a collective asset and none of the family members can claim it to be his/her own asset.
Hindu Undivided Family is a wonderful mean of promoting cooperation and brotherhood within the family. If practiced well, it could turn out to be a wonderful medium of living, where in everything becomes smoother for each member and each member becomes an strength to the other.
However, utmost precaution should be maintained while registering an HUF and listing members into it since a fish can spoil the entire pond.