Thread by @CAYogesh4u

Thread 🧵 on HUF ( Hindu Undivided Family)

HUF is a big concept, will create 2-3 threads for your understanding.

In this thread :
What is HUF?
Formation of HUF
Tax Planning through HUF
How to generate corpus for HUF? @Spaysocial @investyadnya @AdeParimal @gaurav28jain #HUF

What is HUF?

As the name suggests it’s an Hindu Undivided Family. It’s a separate entity recognised like Individual, Companies etc.

Who all covered under HUF?

Hindu’s, Buddhist, Jains and Sikh’s. It means only these people can form HUF.

HUF governed by which Law?

There is no codified law for HUF.

It’s a customary law based on Hindu Law. Hindu law defines major clauses of HUF.

Also governed by Income Tax Act, 1961 as income is in question. So taxation governed by the Income Tax Act.

What’s the use of HUF ?

HUF is primary a tool for succession planning.
But this main purpose is been sidelined in recent times and widely used for Tax Planning for obvious reasons. 😉

Tax planning though HUF

Barring few tax benefits enjoyed by Individual equally allowed to HUF as well.

Like,
Basic slab exemption
Slab wise tax rates
80C/D and other deductions under chapter VI A

So if any individual having his HUF can claim these benefits in both cases.

It means in his individual ITR and under HUF as well.

This is the biggest tax advantage HUF has as, separate PAN will be issued for registering HUF.

So, generally for taking this tax advantage HUF is been formed now days.

How HUF will be formed ?

As per Hindu Law, the day male member gets married his HUF comes into existence.

But, as per Income Tax Act, HUF comes into existence when child is born in the family. Child now includes both boy as well as girl.

Earlier, only boy child were considered as child for HUF but as per amendment in the act in 2005, girl child also considered for forming HUF.

Let’s look at the catch here,

As per income tax act, HUF will be formed when there are 2 Co-parceners.

Co-parceners means 1 male member who will be Karta of HUF and other will be his child. Wife can’t treat as co-parcener, she will be treated as member of HUF.

There are dispute’s and several opinions about this specific clause of formation.

Some are of opinion that HUF can be formed without any child and rest are of opinion that HUF can be formed only after child.

There are several supreme court judgments favouring both the opinions as there is no codified law in place so it’s open for discretion.

In our opinion, HUF should be form only on birth of child in the family as the condition of 2 co-parceners will be met according to income tax act.

Now the important question- 👇🏻

How to create corpus for HUF ?

By,
✅HUF can accept gifts.
✅Capital contribution by co-parceners
✅Taking loans

Gifts received by HUF will attract income tax.

However, HUF can accept gifts upto 2.5 lakhs without tax payable due to claiming basic exemption

Or can upto 4 lakhs without any tax impact as HUF need to make tax savings investments of 1.5 lakhs under 80C allowed options.

By these ways, corpus for HUF can be created.

What you can do with the corpus in HUF or what allowed?

Run any business
Invests in Shares and MF
Can hold Immovable or Movable property

As HUF treated separate legal entity of taxation purpose.

However, HUF not allowed to have professional income source like doctors etc.

Can ancestral property can be taken as corpus of HUF ?

As per Supreme Court judgements, ancestral property can not be considered as corpus of HUF unless it’s been done though WILL.

It’s very important. So one can use above mentioned ways to create corpus.

What about other compliances for HUF?

GST will be applicable if turnover crosses 20/40 lakhs as per the nature of business

Income tax audit can be applicable

TDS/PF/Professional Tax compliances can be applicable if HUF met the eligible criteria

Separate PAN will be issued

I hope this thread gave you basic idea about HUF.

Please retweet for maximum reach 🙏🏻

Please drop your questions in comments if any.

In next thread will see about how to generate income in HUF and taxation and issues to keep in mind while running HUF.

Thanks.

Link of video for detailed understanding:
#HUFtaxation #taxplanning