HUF is a family with husband, wife and children (and children’s spouses if any) living together. The property owned by this family will be through lineal ascendants or any ancestors. There are a set of laws that govern property ownership, marriages, taxation etc for a legally declared HUF. IT department of India has a format of taxation for a HUF; tax benefits can be availed from this format.
Karta of a HUF is the senior most male member of the family and in financial terms he can also be called manager of the family. In this account a corpus is created where every family member can pool their income. The corpus will be handled by or authorized to handle by Karta (head of the family). Signature of karta will be required for every transaction from the bank. These accounts are similar to individual saving bank accounts; there will be various tax benefits that are available for an individual’s account while the income of members is being pooled in HUF account.
Features of HUF account:-
There are a few features of HUF account that makes it different from regular saving bank accounts.
Every member of the family can deposit their income in the common corpus
Single person’s authority while participation from entire family
Tax benefits on deposits under various sections
Corpus can be divided only on agreement of every coparcener of the family
Documents required for opening HUF account:-
There are few documents that will be required for opening an HUF account.
HUF will have a unique PAN card; this PAN card along with the PAN of Karta should be produced.
A declaration form will be provided where every member has to make a signature stating the name of Karta and declare
They are the only members of HUF.
Karta to have sole authority over HUF account
Every transaction on behalf of HUF account, made by each member of the family is governed by karta.
Residential proof of Karta
Identification proof of Karta
Apart from the points mentioned above there can be other documents or conditions depending on the bank where HUF account is opened.
Tax benefits on a HUF account:-
Since the account is equivalent to an individual’s account there are various tax benefits and a few of them are mentioned below.
According to IT act, tax rebates and deductions can be availed under sections 80C, 88 and 80L for HUF account.
Gifts collected up to a worth of Rs 50,000 will be tax free. A father who owns a HUF account can gift a property or money of higher worth to a son who owns a smaller HUF account; but he should specify that the gift is for the son’s HUF and not to him as an individual. Under section 64(2) and 56(2) tax benefits can be enjoyed in such instance.
Corpus can be used for investment in tax free money instruments.
Disadvantages of HUF account:-
There can be a strong sense of insecurity among members that can keep the corpus of the account empty and as long as corpus is empty the account is non functional.
If any of the members of HUF is willing to for a partition then the process of partition in deposit in HUF account can turn to be tedious (problematic).
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