A Hindu Undivided Family (HUF) is a way for Indian families, especially Hindus, Jains, Buddhists, and Sikhs, to unite and manage wealth as a single unit.
It’s legally recognised and helps you save taxes. HUFs have been around for decades and were highlighted in a 1967 government report as a major force behind India’s big business groups. Let’s examine how a HUF works and why it could benefit your family.
Hindu Undivided Family: Meaning
A Hindu Undivided Family (HUF) is a joint family that functions as a separate legal entity for tax and financial purposes. It is automatically created within the Hindu family. A HUF consists of family members from one common ancestor, including their unmarried daughters and wives.
Example: The Sharma Family
The Sharmas in Jaipur owned a large ancestral home and farmland. Rather than splitting it when the sons married, they formed a HUF. Rental income and farm profits were reinvested under the HUF, which kept the assets growing. Mr. Sharma, the eldest, managed it all with everyone’s trust.
Years later, their children continued the same setup. With no internal disputes and regular income, they preserved wealth and grew it across generations—all while keeping the family’s financial goals aligned.
Benefits of Hindu Undivided Family
Having a Hindu Undivided Family comes with several advantages, including:
| Tax Savings | It gets its own basic exemption limit of ₹2.5 lakh, just like an individual. The HUF can also claim deductions under Section 80C, up to ₹1.5 lakh, for investments like PPF, ELSS, and LIC. |
| Separate Tax Entity | A HUF is separate from its members, which has its own PAN, and the income tax returns are filed separately. This makes it possible for the HUF to have different tax slabs and exemptions which are not connected to its members. |
| Wealth Preservation | Creating a HUF keeps assets like property, gold, and investments legally tied to the family unit. This avoids frequent selling or division of assets and supports long-term wealth preservation across generations. |
| Succession Planning | When Karta passes away, the next senior-most family member automatically takes charge. It avoids legal battles, simplifies transitions, and keeps the family’s financial setup intact. |
| Income Diversification | An HUF can receive income from various sources, including businesses, rentals, and investments. This reduces the overall tax burden that your family would have incurred individually. |
| Asset Management | A HUF lets you and your family manage assets and investments, where the returns are taxed under the HUF itself. |
5 Steps to Form a Hindu Undivided Family (HUF)
The following are the steps involved in forming a Hindu Undivided Family (HUF):
Step 1: Create a HUF Deed
Start by creating a HUF Deed, a legal document requiring you to state the names of the HUF members and Karta, the head of the family. All the members are required to sign the HUF Deed for it to be functional.
Step 2: Apply for a PAN Card
You must apply for a separate Permanent Account Number (PAN) to file the HUF taxes. To apply for a separate PAN Card, you must do so through the Income Tax Department’s official portal.
Step 3: Open a HUF Bank Account
Open a HUF bank account, which will be used for financial transactions. The bank account should be in the name of the family’s HUF.
Step 4: Transfer Assets to HUF
The members of the HUF can then contribute property, jewellery, or cash to keep their assets secure. The gifts or inheritance you receive from relatives are also part of the HUF assets.
Step 5: Start a Business or Investments
Once the HUF is implemented, you can run a business, make investment plans, or do property dealings. The income earned through the family’s businesses is taxed under HUF taxation laws.
Members of the HUF
The Hindu Undivided Family (HUF) consists of different types of members, as explained below:
General Members
These are individuals who are part of the family lineage. They include:
- Descendants of a common ancestor
- Their wives
- Unmarried daughters
Coparceners
These members have the legal right to demand a partition of the HUF property. They include sons and daughters of the common ancestor.
Karta
In a HUF, the senior-most male member of the family usually takes charge and is known as the Karta. In modern rulings, even the eldest female can be a Karta.
Secure Your Family’s Future with HUF
A Hindu Undivided Family (HUF) can be a great way to save on taxes and manage family wealth. But it’s not a one-size-fits-all solution.
Before opening a HUF Demat account, ensure it aligns with your financial goals and legal requirements. A quick chat with a financial expert can help you decide whether it is right for your family.
