Hindu Undivided Family or HUF

Hindu Undivided Family or HUF is a legal entity. It comes into existence when one marries and starts a family. A HUF consists of husband wife and their children. Husband is called Karta of the HUF. He looks after the affairs of the HUF. Other family members are called coparceners.

This can be used as a tool for wealth creation and wealth preservation. HUF can do this by reducing the taxes, if properly used.

For tax purpose, HUF is a separate entity.

As indicated, HUF comes into existence when one marries. HUF can acquire assets in various ways. Main one of them is through a will or inheritance. For example, a grad father can bequeath a house to the HUF of son or grand son. When this is done, such gift belongs to all coparceners and all the coparceners have a right on HUF assets or income arising out of them.

There is an interesting and detailed post on this in Jagoinvesotr blog. One can see that by clicking the following link.

http://www.jagoinvestor.com/2011/10/huf-creation-and-saving-tax.html

As indicated, HUF is a separate legal and tax entity.

Procedure to create HUF

One has to apply for a PAN card for his HUF. One can apply online on NSDL site for a HUF PAN card. But a copy of signed application along with document proofs as specified in their website are to be sent as advised on the website. Aftert his, PAN card will be home delivered in 1-2 weeks time.
Then with this pan card and necessary address proofs, one can open an account for his HUF in  a bank.

Managing HUF

A person opening HUF account will be Karta of the HUF. When Karta is signing on behalf of HUF, he has to necessarily stamp stating that he is Karta.
One needs to take precautions while getting assets and funds for HUF. One(any of the co parcenors) should not gift/donate funds to his HUF. HUF cannot take any gifts >50000(total value for year).
However, (karta on behalf of) HUF can borrow from others and invest these monies nd pay interest to the lenders.

HUF corpus can be invested by Karta for better returns. On HUF FDs Karta can give form 15H to avoid TDS, if HUF income is within taxable limits.
Some ideas to invest through HUF.

1.      Get 50000 every year and build up an investible corpus

2.      Borrow from relatives and invest in avenues as per risk appetite. Pay reasonable interest and retain the differential.

3.      HUF can invest in 80C instruments and get additional tax rebate for HUF corpus.

As one explores, one can get many more options based on one’s knowledge and corpus level.

Thus HUF provides a valuable tool for creating and maintaining family wealth.