www.ca-nsa.com 1

TOPICS TO BE DISCUSSED :1. What is HUF?

2. How does HUF come into existence?

3. Who is manager/KARTA of HUF?

4. Whether clubbing provision applicable to HUF?

5. What is partition of HUF?

6. How to generate income by HUF?

7. Tax planning through HUF?

8. Who can give Gift to HUF?

9. Questions & Answers…. 2www.ca-nsa.com

3

1. What is HUF?

www.ca-nsa.com

1. What is HUFHindu Undivided Family (HUF)or

Joint Hindu Family

CONSISTS:

all male lineally descended from common ancestor.

and their wives and daughters

4www.ca-nsa.com

1. What is HUFAny married

Hindu,

Sikh,

Jain or

Buddhist

man can form HUF

5www.ca-nsa.com

2. How does HUF

come into

existence?6www.ca-nsa.com

2.How does HUF come into existence?Formation :

HUF is automatically constituted on

marriage. Few simple formalities to complete

for HUF to function as legal entity

Membership :

It requires minimum of 2 people [at least one male

member]

7www.ca-nsa.com

2.How does HUF come into existence?

1. Husband & Wife form HUF, wife can only be member,

NOT co-parcener.

2. Co-parcener is different from the other members of HUF,

coparceners are those members who acquires by birth

an interest in the joint property of the family.

3.Co parcenary is restricted to four levels of living order.

8www.ca-nsa.com

2.How does HUF come into existence?

4. Members of the family who are not co-parceners- No

right to claim partition.

5. 1st Step Form a corpus for HUF, can be any CAPITAL

ASSET (like property, gold, jewellery, securities,

deposits) or CASH.

9www.ca-nsa.com

Salient Features of HUFCO-PARCENERS:-

1. Some of the members of HUF are designated as co-

parceners.

2. All coparceners are members of HUF, all members are

NOT co-parceners.

3. There's no need to fill an application form or submit

KYC documents for joining an HUF.

10www.ca-nsa.com

Salient Features of HUF

4.Daughters also coparcener w.e.f. 9.9.2005 in the Hindu

Succession (Amendment)Act, 2005.

a. After Hindu Succession Act amendments equal rights to

daughters even after marriage.

11www.ca-nsa.com

Can there be all-female HUF?

Yes, Where a couple has only one daughter and the

husband passes away, the mother-daughter both can

continue the HUF (although a problem may arise after she

gets married and becomes a member of her husband's

HUF).

12

Salient Features of HUF

www.ca-nsa.com

Schools of Hindu Law

13

Dayabhaga School of Hindu Law

Mitakshara School of Hindu Law

Father is the sole owner and the exclusive possessor of the joint family property.

Law-property vests in the HUF itself and not in any individual member of the family.

No member can enforce the partition of the HUF so long as the father lives

It can be partitioned within the lifetime of the father.

Prevalent in :-West Bengal-Assam

Hindus in the rest of the country

Less Popular More Popularwww.ca-nsa.com

3.WHO CAN BE THE MANAGER / KARTA OF HUF?

14www.ca-nsa.com

3.Who can be the MANAGER / KARTA of HUF?

• The FATHER of the family

in absence of Father (Death of Father)

senior male member of the family can be Karta.

15www.ca-nsa.com

Can a female be the Karta?

Unmarried daughter, in the unfortunate event of her father passing

away, will become Karta

All male members are minors & natural guardian is mother then

she is the Karta.

16www.ca-nsa.com

Duties of the Karta

Managing the affairs of HUF.

Maintaining the books of accounts, filing tax returns for

HUF

To enter in to contracts, form partnership firm, or

representation on behalf of HUF.

17www.ca-nsa.com

Residential Status of an HUF

18www.ca-nsa.com

4.Whether clubbing provision applicable to HUF?

19www.ca-nsa.com

4.Whether clubbing provision applicable to HUF?

According to section 64(2) of income tax act,

1961 If Income of HUF from property converted

by the individual into HUF property.

Then that shall be clubbed in the hands of

individual & not in the hands of HUF

20www.ca-nsa.com

4.Whether clubbing provision applicable to HUF?

Clubbing applicable even if: The converted property is

subsequently partitioned; income derived by the spouse

from such converted property will be taxable in the hands

of individual.

21www.ca-nsa.com

22

What is partition of HUF?

www.ca-nsa.com

5.PARTITION OF HUF

Only co-parceners can demand partition

There are two type of partitions are as follows:

1. Total partition :

2. Partial partition : Some family go out of fold off, others remain joint

Or some of the property is divided and other remain joint

Not recognized for tax purpose, after 31.12.1978

23www.ca-nsa.com

6. How to generate income

by HUF?

24www.ca-nsa.com

HUF as Proprietor of Business

1. HUF can be a Proprietor of one or more than one

Business concerns.

2. Separate name can be kept of HUF business entity.

25www.ca-nsa.com

HUF as Proprietor of Business

3. NO TAX AUDIT of HUF business if Turnover within

Rs.1 crores.(AY-2012-13)

4. Business Income Computation @ 8% without books of

account in case turnover is upto Rs. 1Crores – The

Presumptive Basis(AY 2012-13)

26www.ca-nsa.com

Real Estate in the name of HUF

1. 30% Standard Deduction on Annual value of house property (Rental Income) to HUF u/s 24(a).

2. Self occupied one Residential House & the tax gain specially by way of Interest on Loan & Repayment of Loan u/s 24(b).

3. EXEMPTION from Wealth-tax on 1 Residential house in the name of HUF.

27www.ca-nsa.com

HUF as Partner in Partnership Firm

1. HUF can become Partner in Partnership Firm and

Receive Interest on Capital.

2. HUF can not receive Salary / Remuneration from

Partnership Firm.

3. HUF can receive Share in Profit From Partnership

Firm which is exempt from tax. As Partnership

Firm had paid tax thereon.

28www.ca-nsa.com

LOAN GIVEN TO HUF

1. HUF can receive loan from any person.

2. Such amount can be invested in Income

generating Asset.

3. Income from such asset, is not going to club.

29www.ca-nsa.com

30

Tax planning through HUF?

www.ca-nsa.com

Taxation AspectHUF is separate and distinct tax identity.

Five basic heads of income -Salary, House Property,

Capital Gains, Profit from business, and Income from

other sources.

Except for salary, HUF can earn from all of these

sources.

31www.ca-nsa.com

Taxation Aspect

It can invest the initial corpus as well as the gifts received

in subsequent years to earn

o capital gains

o Property can be let out to earn rental income

o Business can be started to earn profit from it.

o Interest and royalty incomes are categorized as other

sources.

32www.ca-nsa.com

Taxation Aspect

Various provisions under the Income Tax Act such as

Advance tax, TDS, penalty, interest, fine, etc. are also

applicable to HUF as in the case of an Individual

Assessee.

33www.ca-nsa.com

Tax Saving through HUF

Separate exemption limit under Income-tax Act of Rs.

2,50,000

Separate deduction u/s 80G.(Donation)

Separate deduction u/s 80C.(Insurance Premium can be

paid on life on any member upto Rs. 1.5 lacs)

34www.ca-nsa.com

Tax Saving through HUFSeparate deduction u/s 80D.(Medi- Claim) (Rs.15000)

Section 80DD deduction for maintenance including medical

treatment of a dependant who is a HUF member.

Salary to Karta /Member,

35www.ca-nsa.com

Wealth-Tax & HUF

1. Separate exemption of Wealth-tax for HUF’s upto Rs. 30 lakhs Wealth.

2. One House- Wealth Tax Free

3. Productive assets of HUF fully exempt from Wealth-tax

36www.ca-nsa.com

Capital Gain Exemption Benefitsfor HUF

1. Cost Inflation Index benefit available to Calculate

Cost of the Asset.

2. Tax benefit of 20% Tax on Long-term Capital Gains.

(Except for non listed shares-Without STT)

37www.ca-nsa.com

Capital Gain Exemption Benefitsfor HUF

3. Saving Tax on Long-term Capital Gain possible by investing in Capital Gains Bonds of NHAI / REC.

4. Long-term Capital Gains Saving by investing in Residential Property.

5. No capital gains to HUF on Distribution of assets on partition.

38www.ca-nsa.com

Tax exempt- Income received from HUF by the member of HUF

1. As per section 10(2) of the Income-tax Act, 1961 any

sum received by an individual from Hindu Undivided

Family of which he is member is exempt from tax.

39www.ca-nsa.com

Stock Market, Mutual Funds & HUF

1. HUF can have a separate Demat Account.

2. Make money by investing in shares of companies :-

(a)Primary Market

(b)Secondary Market

3. Enjoy Tax Free Income for Long-term Capital Gains by

holding shares for more than one year(STT Paid).

40www.ca-nsa.com

Stock Market, Mutual Funds & HUF

4. Enjoy lower tax rate of 15% on Short-term Capital

Gains(STT Paid).

5. HUF can also invest in Mutual Fund.

41www.ca-nsa.com

42

8. WHO CAN GIVE GIFT TO HUF?

www.ca-nsa.com

Taxation of money received by HUF without consideration

1. Provisions of section 56(2)(vi) applicable even to HUF if

any sum of money is received by the HUF exceeding Rs.

50,000 p.a.

2. Items received in kind subjected to the provisions of sec.

56(2)(vi).

43www.ca-nsa.com

8. Gift of HUF Property

2. Gift on Marriage Occasion is valid – S. Lakshmamma v.

Kotayya AIR 1936 Mad. 825.

3. Gift to Strangers void – Guramma v. Mallappa

AIR 1964 SC 510.

44www.ca-nsa.com

8. Gift by a member of HUF

As per section 64(2) a gift by a member of a Hindu

Undivided Family after 31-12-1969 would attract

Clubbing of Income in the hands of the member and

as such the income from the converted property shall

be deemed to arise to the individual & not to the

family.

45www.ca-nsa.com

Smart strategies: Advantages of HUF

Helps avoid service tax : If business turnover is split by setting

up HUF, the service provider can avoid the hassle of charging

service tax and become small scale service provider.

Salary to Karta : This salary is taxed as his income and will be

fully deductible from the HUF income.

Use HUF income for expenses : The income earned by the

HUF can be used for the household expenses of the family.46www.ca-nsa.com

Smart strategies: Advantages of HUF

Distribute income to co-parceners : Karta can gift

money to the coparceners from the income earned by the

HUF. This income is tax-free in the hands of the co-

parceners. This way, person with a high income will be

able to get tax-free income.

47www.ca-nsa.com

Smart strategies: Advantages of HUF

Give loan for business : HUF can give loans to

the karta or coparceners for setting up business &

can charge interest on the loan. Interest paid on

any business loan is fully deductible.

No MAT or AMT : unlike other corporate entities,

no minimum alternative tax on HUF owned

businesses.48www.ca-nsa.com

49

Ways HUFs can be made better

In May 2005, the government passed a rule PREVENTING

HUFs from opening new accounts in the Public

Provident Fund. All existing accounts, which had

completed 15 years since the initial deposit, were also to

be closed by 31 March 2011.

www.ca-nsa.com

50

Ways HUFs can be made better

Kerala does not have a HUF system. For the sake of

uniformity, the same rules should apply across the country.

HUFs are not eligible for some tax benefits enjoyed by

individual taxpayers. They should also be able to claim

deduction for interest paid on education loans, benefits for

pension fund contributions.

www.ca-nsa.com

51

I , ………………… son of …………… Residing at ………. aged ………. Adult do

hereby declare ……….That I am Karta of …………………

That I received on behalf of the H U F gift of Rs. …………. by way of CASH /

CHEQUE from my FATHER ……………….. (name of relative of KARTA of HUF)

on dt. …………….. And this formed the corpus of the HUF.

That the HUF at present is consisting of the following members:

(I)Shri................ , Adult, Residing at..........

(II)Smt .................. , Adult, Residing at...........

(III)Kumari ............ , Minor , Residing at..........

SPECIMEN DEEDS RELATING TO HUFFORMAT – I

DECLARATION

www.ca-nsa.com

52

That the above statements are true to the best of my

knowledge and belief. Declare this on……………..

WITNESS Signature

1.………..

(.............)

2. …………

SPECIMEN DEEDS RELATING TO HUFFORMAT – I

DECLARATION

www.ca-nsa.com

53

DECLARATION OF GIFT MADE BY………………………………………………

TO THE HINDU UNDIVIDED FAMILY ………………………………………..

I, ……………………………………., residing at …………………. ,

Do hereby declare and affirm as under : -

1.That out of natural love and affection borne by me towards the Hindu

Undivided Family of ……………………… , I have made a gift of Rs……….

(Rupees ……………….only) as per the following details:

by cheque No. ………., dated ……. , drawn on bank…….. ,

Branch in favour of …………….HUF

SPECIMEN DEEDS RELATING TO HUFFORMAT – II

(To be executed on Rs. 100 Stamp paper in Maharashtra)

www.ca-nsa.com

54

2. The above gift has been duly accepted by………… , as KARTA of his Hindu Undivided Family and has been duly acknowledged hereunder.

3. This declaration of Gift is made to record the fact that I have made this gift in favour of the Donee as above, Who now has the absolute right, title and interest in the gifted amount.Date …………..,2015 …………………

(sign)

SPECIMEN DEEDS RELATING TO HUFFORMAT – II

(To be executed on Rs. 100 Stamp paper in Maharashtra)

www.ca-nsa.com

55

I, ……………………………………… , hereby acknowledge having

received the above gift to my HUF

by……………………………………………

Date,……...,20…….

……………………………….

(signature of the Donee

as KARTA of his HUF)

ACKNOWLEDGEMENT OF GIFT

www.ca-nsa.com

56

This deed of gift is made and executed at Jaipur on this 30th day of

November, 20……..by and between:

1. ………………………… W/o / s / o ……………………….aged

about……………………years resident of ………..(hereinafter)

Referred to as the DONOR and the party on the FIRST PART)

2. ………………………………HUF , ADDRESS…………………..comprising

the family members………..(KARTA), his wife……………his son………AND

………….RESIDENT……….(Herein after referred to as the DONEE and the

party on the SECOND PARTY)

HUF GIFT DEED

www.ca-nsa.com

57

WHEREAS the Donor is the wife of brother in law of KARTA of

the Donee and is highly affectionate to him.

AND WHEREAS the Donor out of natural love anf

affection towards Donee have made a gift of Rs…………/- (in

words…………………) by way of account payees cheque no.

…….dated ……drawn on…….Bank Ltd,…….

AND WHEREAS the done has accepted the said cheque,

AND WHEREAS the Door and Donee desire to deduce the

covenant of this gift into writing.

HUF GIFT DEED

www.ca-nsa.com

58

THIS DEED NOW WITNESSETH ASUNDER

1. That the gift so made is without any material consideration and

is absolute

2. that the Donee has accepted the same by his free will.

3.That the gift is irrevocable in any circumstances.

HUF GIFT DEED

www.ca-nsa.com

59

. IN WITNESS WHEREOF the donor and the done put their respective hands in token of their having accepted the terms and conditions on the day, month and year first mentioned.

Witnesses signature1………….. ……………DONOR

HUF GIFT DEED

www.ca-nsa.com

60

9. Questions & answers….

www.ca-nsa.com

• Ph no. : (0265) 298 20 30, 298 30 40, 8000 98 20 90. MOBILE NO. 93 77 23 72 94.

• E-mail: info@ca-nsa.com web: www.ca-nsa.com

• Address : 412, Sanket Heights, Sunpharma Road, Atladra, Near Akshar Chowk, O.P. Road, Vadodara. 390020.

61www.ca-nsa.com