Introduction to HUFs

This post is written by Shiv Kukreja

The Hindu Undivided Family (HUF) structure is a very effective way to save tax and a lot of people are eligible to create HUFs but somehow there is very little awareness about it.

I think that’s because most of us don’t know how easy it is to create an HUF. In fact, it is as easy as getting married. I would say it might be difficult for somebody to get married but it is very easy to create an HUF.

An HUF is automatically constituted the moment a person gets married and completes seven pheras around the holy fire and they get married.

That means a Hindu male needs to do nothing to get an HUF created but to get married to a Hindu female. It is one marriage gift that all Hindus get from the government or Hindu Law. It is not necessary to have children to create HUF.

Sikhs, Jains and Buddhists can also create an HUF under the Income Tax Act even though they are not governed by the Hindu law.

What is an HUF?

An HUF is a separate and a distinct tax entity. The income of an HUF can be assessed in the hands of the HUF alone and not in the hands of any of its members. The senior most member of the family who manages the affairs of the family is called the Karta. Minimum two people (at least one male member) are required for the HUF to come into an existence.

A coparcener is a member of the HUF, who by birth acquires an interest in the joint property of the family, whether inherited or otherwise acquired by the family.

Coparceners have a right to claim partition of the HUF. Other members of the family cannot ask for a partition of the HUF and have no right to claim a share in the family property. Coparceners consist of a Karta and his lineal descendants within the following four degrees:

  • 1st Degree: Holder of the ancestral property for the first time – Karta
  • 2nd Degree: Son(s) and Daughter(s) of the Karta
  • 3rd Degree: Grandson(s) of the Karta
  • 4th Degree: Great Grandson(s) of the Karta


A daughter, after her marriage, would remain a coparcener in her father’s HUF and at the same time, can become a member in her husband’s HUF. In the event of the death of the Karta and in the absence of any male member, two females can continue to run the HUF and the senior female can take over as the Karta. A son can create his own HUF while remaining a coparcener in his father’s HUF.

Capital Infusion: Here comes the most difficult part for someone to start the HUF operating – generating capital for the HUF.

One should not contribute his own personal assets or funds into the HUF as any income generated from these assets or from its investment will be clubbed into Individual’s personal income under Section 64 (2) of the Income Tax Act and hence taxed accordingly.

But there is a way out – one can transfer his personal assets or funds into the HUF if the income generated from these assets or from its investment results in a tax free income (like tax free bonds) and hence there is no scope of any tax liability due to clubbing of taxable income.

This tax free income can then be reinvested to earn even taxable income and eventually all of the income would fall out of the clubbing provisions.

Gifts or inheritances meant for the benefit of all the members of a family should be diverted specifically to the HUF. HUFs are liable to pay tax if the value of the gifts taken from the strangers exceeds Rs. 50,000. Though there is a limit for an HUF to take gifts from the strangers, gifts of a higher value can be taken from the relatives, who are not the members of the HUF.

Here is the list of people who fall in the category of relatives:

  • Karta’s Wife
  • Brother(s) or Sister(s) of the Karta
  • Brother-in-law or Sister-in-law of the Karta
  • Immediate Uncle(s) or Aunt(s) of the Karta
  • Immediate Uncle-in-law or Aunt-in-law of the Karta
  • Lineal ascendant or descendent of the Karta or Karta’s wife

A father can also gift money to his son’s HUF but need to specify in the gift deed that the gift has been made to the son’s HUF and not to the son as an individual. Ancestral property can be an asset of the HUF and an income earned on this property can be classified as the income of the HUF. If any of these ancestral properties are sold, the money received on such a sale should be transferred to the HUF.

How to get started with the HUF?

Once there are two eligible family members ready to operate an HUF, the first thing to do is to apply for a PAN card in the name of the HUF and have a separate bank account opened.

For a PAN application, an affidavit by the Karta stating the name, father’s name and address of all the coparceners on the date of the application is considered sufficient as the document proof of identity of the HUF. Also, the identity and address proof of the karta will be treated as the address proof of the HUF.

Then start seeking for gifts or inheritances from relatives or strangers, keep on infusing your own capital, transfer family’s assets/properties to the HUF and do all the possible things that you can keeping in mind the clubbing of income provisions.

Here is a link that contains a sample HUF deed.

Sections/Provisions under which HUFs can claim Deduction/Exemptions and Save Tax

As already mentioned, an HUF is a separate and a distinct tax entity and just like any other Resident Individual assessee, it also enjoys a basic tax exemption of Rs. 2,00,000. All other tax slabs are also exactly same as for an Individual. Here is a useful link from Bemoneyaware that shows the TDS rates for Individuals and HUFs.

Section 80C: HUFs can claim tax exemption under Section 80C by investing money in ELSS, ULIPs, traditional insurance plans, NSC or 5 year Bank FD with a scheduled bank. Principal repayment on a housing loan taken by the HUF can also be claimed under this section. HUFs are not allowed to invest in PPF anymore.

Section 80D: Members of the HUF can take a family floater policy and make the HUF pay for its premium and enjoy the tax benefit too.

Section 80DD: If any dependant member of the HUF is normally disabled (not less than 40% disabled) and the HUF makes an expenditure for the medical treatment, training and rehabilitation of that disabled member, then the HUF can claim a deduction of Rs. 50K under this section. If the condition is of a severe disability (equal to or more than 80%) then the HUF can claim a deduction of Rs. 100,000.

Section 80TTA: Interest earned on the money deposited in the savings bank account up to Rs. 10,000 p.a. is exempt for an HUF also.

Section 24 (b): Interest on Housing Loan: If an HUF takes a loan for buying out a residential property, it can claim a deduction of Rs. 150,000 in respect of Interest on Housing Loan.

30% Standard Deduction on a Rented Property: An HUF can claim a standard deduction of 30% from the rental income it earns by letting out a property.

Capital Gains on a House Property: Tax on Capital Gains made by selling a house property can be saved if the HUF invests the proceeds into buying another property within two years from the sale of the said property. The money can also be invested in Capital Gain bonds offered by REC and NHAI with a lock-in period of 3 years. The interest income on these bonds would be considered a taxable income of the HUF.

The table below shows how the income of an individual in the 30% tax bracket can be split between two entities to lower the final tax outgo:

Introduction to HUF
Introduction to HUF

Some Other Important Points

  • Karta can be paid a reasonable salary for his services of managing day to day affairs of the HUF. The salary will be considered his personal income but at the same time it is deductible as an expense from the books of the HUF.
  • Only one member or coparcener cannot form an HUF. There have to be at least two members and at least one male member.
  • HUF can keep its normal functioning even with two females after the death of its sole male member.
  • The Hindu Succession (Amendment) Act 2005 has given equal rights to male and female in the matters of inheritance as a result of which a daughter now also acquires the status of a coparcener.
  • An HUF cannot become partner in a firm but a Karta can.

These were some important aspects when it comes to creating an HUF and everyone, who is eligible to create an HUF and pays taxes, should strongly consider this option as it is a very efficient and good way to save tax.

165 thoughts on “Introduction to HUFs”

  1. I have created huf account. I am karta. may I start new business under HUF .pl give me advice. you can call me on 9822622093 or leave your mob.no on my mail I’d.so that I can call you.

  2. Hi.. very informative piece.. thanks!
    pls clarify 1more info- dDoes a married sister ( married 40 years back) who has never been the coparcener or ever applied for it can claim a partition of HUF? Can she apply for dissolution of Huf? An ancestral property in the Huf… how much rights does a married sister has on the property when the brother is the karta.

    1. In my opinion,
      1. If inherrited property is transferred to HUF by consent of all copercener, then YES.
      Else

      2. If one receives assets/capital in personnel capacity,then sale proceed is not part of HUF. However one can transfer to HUF but Clubbing provision may be applied on taxation, which may not be beneficial.

  3. I have a HUF and want to transfer funds from my HUF account to my personal account, can I do it and what are the implications of this.
    I am the karta with two sons and both are coparceners in the HUF. One of my son is with me while my second son has started on his own. Can my son take any objection if I transfer funds from the HUF account to my personal account??

  4. 1. My father karta of HUF
    2. My mother karta of wife(Mother died)
    3. Three daughters of karta all are married.
    4. Myself only son of karta.

    One year before my father died, so we need to know below details
    1. Who is the next karta?
    2.Who is the coparceners?
    3.Who is the members?

    Kindly give me your valuable suggestion.

  5. Hello,

    I have a query can you please guide ? – My query is that suppose one receives money from sale of flat which one inherited. The proceeds of the flat are invested in Capital bonds to save tax. Once the capital bonds mature can this proceeds be used to infuse capital to create HUF?

  6. we are having a house on the name of my mother only, we have taken a joint loan on the name of my mother, father and myself.
    the whole EMI is paid by me only.
    is it possible I can apply for tax relief if I use HUF.
    how to transfer the property to HUF, any documentation required??

  7. mr shiv
    i want to know that
    Can HUF earn commission income without investing any funds of HUF and the Karta only puts in all the efforts for earning the commission

    kindly reply soon

  8. Though only one male member of a family son become absoulute hounour of his fathers property, with the permission of his mother. Son who gets property run huf of account of his father. Now son can give this property to his child by will?

  9. Very informative & useful article .
    Pls.forward your further views in future as well at my above e-mail address.
    Tks. & Regards

  10. Hi Shiv, i have a query on nomination as below. appreciate if you can reply at earliest.

    My father is the karta of the HUF account. please can you confirm the successor as karta’s wife i.e my mother ? and whether the successor can use all the funds ?

    Concern is around the nomination which HUF a/c doesn’t allow. my father wants to pass on the HUF a/c’s investment amount to my mother which is logically correct. Appreciate if you can suggest some other alternative on nomination front.

  11. Is there any immovable property constructed by an partnership firm formed by the individual members of h.u.f being trasferred to h.u.f ?

  12. In my opinion

    1. There shall not be any Gift tax and clubbing.
    2. If individual transfers to HUF, clubbing provision shall be applicable

  13. can a mother who is a doctor can give a gift of Rs. 15 lacs to his son’s huf is this amount is exempt from gift tax and whether any clubbing provision will attract ?
    if gift is taken in individual capacity and then transferred to huf then whaa will be the tax implication?

  14. Sir
    I have gone through your article. It helps very much to in reach my knowledge.
    For better understanding please reply the under noted
    A family consist of the followings:
    a. Karta
    b. Wife of Karta
    c. 1 Married son along with his wife and 2 son and 1 daugher
    d. 1 Married son with his wife
    e. 1 Unmarried son
    f. 1 Married daughter and her husband 1 son and 1 daughter
    g. I Married daughter and her husband
    h. 1 Unmarried daughter.

    In the above circumstances please mention who are the members of family, who are coparceners and at what percentage they get their shares if the HUF dissolve right now.

    Your valuable reply will highly appreciated.

    Santosh

  15. Hi Shiv,

    Thanks a ton for sharing the information. This is indeed a great thread on HUF. I have some questions regarding HUF and I would really appreciate if you could help me.

    My cousin was the Karta of a HUF. He is survived by his wife and two minor children. HUF invested in mutual funds, FDs, equity shares (through demat) etc. Here are my questions:

    1. What is the best option to either continue / discontinue the HUF?
    2. Do you think that succession certificate will help?
    3. Who can be the Karta if a new HUF is formed and the particulars of old HUF is transferred in the new HUF?
    4. Any pointers on the process for q2 and q3 will greatly help me

    Thanks in advance for your help

    Ritesh

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