Under Hindu Law, a HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. W.e.f 9.9.2005, the daughters does not cease to be member on HUF of her father even after her marriage though she will also become member of her husband HUF, if any.A HUF cannot be created under a contract, it is created automatically in a Hindu Family. Hindu Undivided Family (HUF) is treated as a 'person' under section 2(31) of Income Tax Act, 1961. HUF is a separate entity for the assessment of income tax.
How to Form a HUF?
How to Form a HUF?
One of the important reason for forming a HUF is to get additional tax benefit. However, before doing so, one should be aware of the terms and conditions required to create a HUF:
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HUF should only be formed by a family.
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HUF is automatically created for the newly added member in the family at the time of their marraige.
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HUF is generally consists of a common ancestor and all of discendents including their daughter and his wives.
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Hindus, Buddisht, Jains and Sikhs are able to form HUF.
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HUF is often has assets which come as a will, gift or ancestral property.
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Once the HUF is created, a PAN number will be generated in the name of HUF after that a bank account should be created in the name of HUF.
Taxation
Taxabiltiy of HUF
In order to compute the income of a HUF, one must first ascertain its income under the different heads of income (ignoring incomes exempted under sections 10 to 13A of the Act). The following points should be kept in mind while computing income:
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If funds of a HUF are invested in a company or a firm, fees or a remuneration received by the member as a director or partner in the company or firm may be treated as income of the family.
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However, if fees or remuneration is earned for service rendered by the member in a personal capacity, it will be treated as the personal income of the member.
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If any remuneration is paid by the HUF to Karta or any other member for the service rendered by him, remuneration is deductible from the income of HUF if such payment is genuine and not excessive and paid under a valid and Bonafide agreement.
The following incomes are not taxed as income of HUF:
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If a member has converted or transferred without adequate consideration his self-occupied property into the joint family property, income from such property is not taxable in the hands of the family.
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Income of impartible estate (though it belongs to family) is taxable in the hand of the holder of the estate not in the hand of HUF.
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The personal income of the member cannot be treated as the income of HUF.
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"Stridhan" is an absolute property of a woman, hence income arising therefrom is not taxable as income of HUF.
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Income from an individual property of a daughter is not taxable in the hands of HUF even if such property is vested into HUF by the daughter.
Deduction from Gross Total Income:
An HUF is entitled for deduction available under Chapter VIA (as applicable) while calculating its taxable income
Rate of Tax:
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An HUF is taxable on the same slap rates which are applicable to an individual.
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An HUF is liable to pay Alternate Minimum Tax if the tax payable is less than 18.5% (including cess and surcharge) of "Adjusted Total Income" subject to prescribed conditions.