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 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 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 as the “Member of HUF”. Male members of the HUF are designated as “Coparceners”. A coparcener can demand partition of the HUF. HUF can only be taxed as a separate entity if it consists of at least 2 coparceners.
From Income-tax perspective, HUF is taxed similar to individual 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 tool for tax planning. Slab rates applicable to individual are also applicable to HUF too.
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