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HUF

HUF means Hindu Undivided Family. You can save taxes by creating a family unit and pooling in assets to form a HUF. HUF is taxed separately from its members. A Hindu family can come together and form a HUF

  • HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members.
  • Deductions under section 80 and other exemptions can be claimed by the HUF in its income tax return.
  • HUF can take an insurance policy on the life of its members.
  • HUF can pay a salary to its members if they contribute to its functioning of the HUF. This salary expense can be deducted from the income of HUF.
  • Investments can be made from HUF’s income. Any returns from these investments are taxable in the hands of the HUF.
  • A HUF is taxed at the same rates as an individual.

Steps to form a HUF

Name
Selection
HUF
Deed
PAN
Allotment
Separate Bank Account

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Procedure

While there are tax advantages of forming an HUF, you must also meet some conditions

  • One person cannot form HUF; it can only be formed by a family.
  • HUF consists of a common ancestor and all of his lineal descendants, including their wives and unmarried daughters.
  • Hindus, Buddhists, Jains and Sikhs can form HUFs.
  • HUF usually has assets which come as a gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
  • Once a HUF is formed it must be formally registered in its name. A HUF should have a legal deed. The deed shall contain details of HUF members and the business of the HUF. A PAN number and a bank account should be opened in the name of the HUF.

Documents

  • KYC documents of members
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