The government collects tax in different ways from individuals, companies, firms and other entities legally under the Income Tax Act. One such unit of taxation is the Hindu Undivided Family. It has its own set of liabilities and exemptions. HUF as a concept was created in India to ensure that families stay together and the ropes of their businesses remain within the family. Families in today’s time and age are still following this principle set out centuries ago.
There are also many options to save tax legally from the Income Tax Act. Hindu Undivided Family is also one of these tax saving plans. HUF comes under Hindu law and any newly married couple or a member of a joint family can take advantage of it. To say, this is a plan for a Hindu undivided family. In this, the senior member of the family is called the Karta. The HUF will ensure that the wealth and control of a business remains with the family. HUF is a spirit which has now been given legal recognition.
Know what is HUF
HUF means Hindu Undivided Family. According to Hindu law, HUF is a family consisting of descendants of a common ancestor. This includes his family members such as his wife and unmarried daughters. It cannot be made a Hindu Undivided Family under a contract. It is created automatically in a Hindu family. Apart from Hindu, Jain, Sikh and Buddhist families can also form HUF.
An Inspection of HUF and Karta
Hindu Undivided Family (HUF) is not the creation of any codified law, but it is merely a practice which has been treated as a separate individual under the provisions of Income Tax Act 1961. HUF includes individuals who are descendants of a common ancestor. A person gets the right by birth in a HUF either as a co-partner or by marriage as a member. This is a first and foremost concept.
Role of Karta in HUF
The Karta is usually the eldest member of the family. Once the karta passes away or retires, the eldest child (male or female) becomes the next karta of the HUF and the HUF will continue as usual without distribution of any assets. The remaining persons who are born in the family will automatically become co-partners of the HUF at the time of birth. Any woman who is married to a co-partner automatically becomes a member of the HUF by marriage. Women have rights in two HUFs, their father’s HUF as a co-partner, and her husband’s HUF as a member. Certainly a co-partner is a joint heir in its literal sense. Anyone born in an HUF automatically becomes a co-partner.
Role of women in HUF
Like sons in a HUF, daughters become co-partners from birth. According to which they have equal rights and duties as sons in HUF. That is, they can demand their share in the HUF properties at any time. Before this was amended in 2005 under Hindu Succession, daughters were members of a HUF and were not co-partners. It is important to note that women who join HUF through marriage are its members and not co-partners.
Know the benefits of HUF
1-A HUF can invest in the market.
2- A HUF gets tax exemption of Rs 2.5 lakh.
3-A HUF can run its own business to earn income.
4-HUF can also take advantage of home loan.
5-A HUF can own a residential house without paying tax.
6- HUF members can claim an additional tax deduction of Rs 25,000 on the premiums paid for health insurance.
7-If the member is a senior citizen, then this limit increases to Rs 50,000.
Apart from the advantages, we also have some disadvantages with HUF.
1-When income of a joint family is assessed as HUF, it will continue till the co-partners opt for partition.
2- The closure of the HUF can be quite difficult as it will require the consent of all the members of the Hindu Undivided Family.
3- Karta has more powers than co-partners or members.
4- New members who join the family through birth or marriage have an equal share in the HUF property. This is also true of an unborn child.
5- If an HUF in the family is dissolved and its assets are sold, then the profit received by each member will be taxed as IT treats this profit as your income.