We often come across the word “HUF”. Let us understand what exactly HUF means. The term HUF refers to ”Hindu Undivided Family”. It consists of a family with a husband, wife and children including unmarried daughters living together. If you are Hindu, Buddhist, Jain or Sikh, you can have a HUF as a separate tax entity. Let us understand how HUF works from the taxation point of view:
Suppose Mr Rahul has an individual PAN and files his returns based on his Income. Along with this, once he gets married, he can create a distinct entity called Rahul HUF, which can include his wife and his kids. The head of the family or the senior-most person i.e. Rahul (in this case) is called the “Karta”. Everyone who forms part of the HUF is called a “Member of HUF”. Male members of the HUF are designated as “Coparceners”. A coparcener can demand a partition of the HUF. HUF can only be taxed as a separate entity if it consists of at least 2 coparceners.
From an Income-tax perspective, HUF is taxed similar to individuals however the only difference is a PPF(Public Provident Fund) account cannot be opened in the name of HUF. As a taxable entity, HUF can be used as a tool for tax planning. Slab rates applicable to individuals are also applicable to HUF too.
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