FINANCIAL PLANNING: Hindu Undivided Family can help you save taxes

Hindu Undivided Family (HUF) comprises the people lineally descended from a common ancestor, including wives and unmarried daughters. The HUF brings many tax advantages and has its demerits as well. Let me explain you the HUF concept which will help you get benefits in tax savings as allowed under our tax laws.

There are certain important points to understand such as knowing the HUF concept, the pre-requisites before forming HUF, creation and recognition of HUF under income tax, case study to explain the tax advantage of having HUF. Then some other important aspects such as how HUF helps you save taxes, whether the income of HUF becomes taxable and can HUF invest in mutual funds, stocks or fixed deposits?

Then things like how to form HUF, its disadvantages are something which also should be known. So let us understand the basic HUF concept in this column:

The HUF concept

Like the very name itself suggests, HUF means a family that consists of Hindus and includes the Jains, Buddhists and Sikhs. Actually, the inception of HUF concept is dated back to our old Hindu laws. The HUF gets automatically formed immediately when a person gets married. Besides, you can form your HUF in other ways also such as by getting a stamp paper agreement and by transferring your assets to the HUF. You also need to apply for a PAN and can open a bank account. You cannot create HUF under a contract because it is created automatically in a Hindu family.

Know the pre-requisites before forming a HUF

In order to form HUF, a few conditions are mandatory such as one must have a family as one person alone cannot form HUF. However, it gets created automatically when you get married. It also covers the common ancestor and all the lineal descendants and their wives and unmarried daughters. HUF can get the assets via gifts or a will or by transferring any ancestral property. You need to prepare a legal deed, then apply for a PAN card and a bank account.

Other points mentioned above will be covered in the next column, stay tuned.

The writer is chief gardener, Money Plant Consultancy