Hindu Undivided Family (HUF)

Transcription

1 Hindu Undivided Family (HUF) HUF or Hindu Undivided Family is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. All male adults in the family are called Co-Parceners, and all female members of the family are called Members, and the head of the family Karta (Generally the eldest male). Who Can Create HUF Any hindu individual male can create HUF as soon as he gets married to a hindu female. Its not necessary to have children to create HUF. Persons from other religion are not eligible to create HUF except Jain and Sikh who can create HUF even though they are not governed by hindu law. HUF Consists of Karta: KARTA is generally the father of the family who has the right to do all the things for the family and takes all the decisions on the behalf of the family. Co-Parceners: Coparcener is the person who has the right to demand the share of the property of family if he/she wants to part away with the family with his/her share. Member: Are the family members who dont have right to demand the share of the property. What all is required to Create HUF Apply for a PAN Card HUF Stamp Open a Bank account. HUF Declaration(Will Be Shared in Next Post) KEY POINTS IN CREATION OF HUF You can Create HUF only after getting married. You can not transfer your own assets/money into HUF. HUF's are allowed to open Savings account although its a non Individual entity. An HUF can recieve any amount in gift from bigger HUF's (HUF of Father, HUF of Grandfather) Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF. If you have ancestral property and earning some income from this property, then it is better to transfer this asset to HUF and savetax up to exemption limit applicable to individual. Existence of property or multiple members is not a pre-requisite to create HUF. You can transfer the money received on sale of ancestral property /assets into your HUF. The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF. HUF enjoys tax exemption of Rs. 1 lakh under Section 80C in respect of LIC premium, NSC, ELSS, 5 year bank deposits etc. Stranger can gift HUF but nor more than rupees as per section 56 ofincome tax act.

2 HUF income and individual income are different and to be taxed differently. In HUF there could be all the females members also when the husband dies and she has no sons. HUF also enjoys wealth tax exemptions available to individuals. Recent amendments in HUF rules(hindu SUCESSION ACT in 2005) The daughter could also be a Coparcener like the sons of the HUF. Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband. The degree of the Coparcener limited to four degree(great Grandson) and not all the members of the family are Coparcener. For creating the HUF one need to get married, there is no need to have child or children for creating the HUF. The female could also be a KARTA as the amended when the father unfortunately dies and she has no brother. In that condition the daughter or the mother can be the KARTA. in HUF there could be all the females members also when the husband dies and she has no sons. The HUF can t be a partner of the firm as the HUF is not a person whereas the KARTA of HUF can be a partner of the firm. HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business. Illustration Mr. Sachin Sharma, if he is married then he can create an HUF in the style of "Sachin Sharma HUF." Now suppose there are 4 adult members in the family consisting of his wife Asha Sharma, married son Ashish Sharma and daughter in law Shalini Sharma, and all are earning and being taxed as per highest tax slab. Suppose there are deposits and investments in the name of HUF and HUF also earns an income of 1.5 lacs. Then income of Sachin Sharma HUF will not be considered as an income of any member of the family, but the income of HUF which is seperate income in the eyes of law. Whats more, HUF enjoys the tax benefits which only an individual enjoys, i.e.income upto 1 lac sixty thousand is tax-free and that entity will not be liable to pay any tax. However if this income would have been added in the income of any of the family member, then they had to pay tax on that income as per highest tax slab. Now, what becomes more interesting that Son of Mr. Sachin Sharma, Ashish Sharma can also create another HUF Sachin Sharma HUF, for which he will be Karta and continue being Coparcener/Member of the HUF created by his father "Sachin Sharma HUF". Now this Sachin Sharma HUF will again become seperate entity enjoying all the tax benefits an individuals gets.

3 In this particular example we have seen that although there are 4 members in the family but 6 different entities in the eyes of law enjoying the tax benefits which are applicable to individuals. Now even if all the bembers have exhausted the benefits by investing 1 lacs each under section 80C, they can invest additional 2 lac from the 2 HUF accounts even if the investment is in the name of HUF only or any of the members of HUF. This illustration shows how powerful tax saving tool an HUF is.

4 FORMAT OF HUF CREATION DEEDS FORMAT-I DECLARATION 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/ CHEAUE from my FATHER (name of relative of karta of HUF) on dt. this formed the corpus of the HUF. That the HUF at present is consisting of the followings members- I) Shri, Adult, Residing at II) Smt., Adult, Residing at III) Kumari -Minor, Residing at That the above statements are true to the best of my knowledge & belief. Declare this on WITNESS: Signature ( ) FORMAT- II [To be executed on Rs. 100 Stamp Paper in Maharashtra] DECLARATION OF GIFT MADE BY TO THE HINDU UNDIVIDED FAMILY OF I,, residing at, do hereby declare and affirm as under:

5 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. 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:, 200 (Signature of the Donor) ACKNOWLEDGEMENT OF GIFT I,, hereby acknowledge having received the above gift made to my Hindu Undivided Family by. Date:, 200 (Signature of the Donee as Karta of his HUF) SUBSEQUENT DEEDS HUF GIFT DEED This deed of gift is made and executed at Jaipur on this 30th day of November, 2007 by and between: W/o/S/O aged about years resident of...( hereinafter reffered to as the DONOR and the party on the FIRST PART ) and : HUF, ADDRESS... comprising the family members...(karta), his wife , his son...and...resident...(hereinafter reffered to as the DONEE and the party on the SECOND PART)

6 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 and affection towards the Donee have made a gift of Rs.../-- (in words...) by way of account payees Cheque no...dated... drawn on...bank Ltd,... ; AND WHEREAS the Donee has accepted the said Cheque; AND WHEREAS the Donor and Donee desires to deduce the covenants of this gift into writing ; THIS DEED NOW WITNESSETH AS UNDER 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. IN WITNESS WHEREOF the donor and the within mentioned donee put their respective hands in taken of their having accepted the terms and conditions on the day, month and year first mentioned. Witnesses Signature 1. DONOR Accepted 2. DONEE

7 COMPLETE PARTITION OF A HINDU JOINT FAMILY This deed of partition is made on the day of the month of of the year 200. Between s/o resident of (hereinafter called the first party) of the first part s/o resident of (hereinafter called the second party) of the second part s/o resident of (hereinafter called the third party) of the third part: and widow of resident of (hereinafter called for fourth party) of the fourth part. Where as the further of the second and third parties and husband of the fourth party, namely late Shri and the first party were brothers, being the sons of late Shri. And whereas they all constituted a Hindu joint family governed by the of Hindu law. And whereas the said Shri died of the year leaving him surviving the parties and entitled to claim partition of the joint family estate. And whereas the family has continued to remain joint and to hold and enjoy all the properties jointly. And whereas the parties hereto are all the members of the joint family entitled to claim partition and also competent to contract, the other coparceners being the minor sons of the second and third parties. And whereas the parties hereto have mutually agreed to divided the entire joint family properties into two equal parts and to allot one part to the first party and the other to the second, third and fourth parties.

8 And whereas the second, third and fourth parties have also mutually agreed among themselves to further divided and one-half part of the joint property allotted to them into three equal parts and to allot a part each of the said three parts to each one of them. NOW THIS DEED WTINESSES as follows: (1) That the parties hereto do hereby mutually agreed and declare that they have actually divided the hitherto joint property of the Hindu joint family of the descredants of Late Shri (here give the name of the father of the first party) among themselves into the four Parts specified herein below, as Part I, Part II, Part III and Part IV, and that henceforth the first party shall be the separate owner of the properties specified and included in Part I and second party shall be the separate owner of the properties specified and included in Part II and the third party shall be the separate owner of the properties specified and included in Part IV and each of them shall hence forth hold and enjoy the properties specified and included in his Part in severalty and to the exclusion of the parties other than himself; and the parties hereto do hereby mutually release and relinquish to the other all their respective right, title and interest in the properties specified in the Part other than the Part allotted to himself. (2) That the parties hereto do hereby mutually covenant with each other that: (I) The property specified and included in the Parts allotted to each party shall be entered upon and henceforth held and possessed in severalty by each one of them, respectively, without any interruption or disturbance by any party other than himself. (ii) The parties will, at the cost of one requiring the same, do every such act or thing as may reasonably be required for further or more perfectly assuring the property hereby allowed to each one of them. (iii) That the parties hereto hereby declare that despite some disparity in the value given which hare against each of the Part II, III and IV given for purposes of payment of stamp on the said Parts, II, III and IV and the value given against Part I which is also given for the purpose of payment stamp duty and registration charges, the partition hereby made is fair and equitable and that while of the one hand the agreed real value of each of Parts II, III and IV is equal on the other hand, the total of the agreed real value of Parts II, III and IV is equal to the agreed real value of Part I. (iv) That the expression first party, second party, third party and fourth party, shall, unless there by anything contrary thereto in the context, mean and include, their respective heirs, survivors, successors, representatives and assigns. Part I Part II Part III

9 In witness whereas the parties hereto have executed this deed on the date first hereinabove mentioned. Witnesses: 1. (First Party) 2. (Second Party) (Third Party)