Hindu Undivided Family (HUF) Deed/Affidavit: How to Establish an HUF?

Hindu Undivided Family (HUF) deed/affidavit: How to establish an HUF?

A Hindu Undivided Family (HUF) is a distinct legal structure in India that allows families to collectively manage their assets while availing themselves of considerable tax advantages. If you aim to safeguard family wealth, minimize tax obligations, or establish a shared fund for future descendants, forming an HUF can be a wise decision. But what are the specific steps to establish an HUF, and what does it entail?

In this article, we will guide you through the process of establishing an HUF, including drafting the Hindu Undivided Family (HUF) Deed and the Hindu Undivided Family (HUF) Deed format, which is a crucial document detailing the family’s members and assets. Whether you’re beginning to consider this choice or are prepared to set up an HUF, this blog will clarify the process and assist you in understanding how to benefit from this distinctive family structure.

What is a Hindu Undivided Family (HUF) deed/affidavit?

A Hindu Undivided Family (HUF) Deed is an important document in establishing a HUF. The Indian Income Tax Law acknowledges HUF as an independent legal entity. The HUF deed acts as legal proof for families combining their income, resources, and assets to operate the family business. The HUF deed establishes the entity for carrying out the business, specifies the members, and outlines operational and management guidelines. You may reach out to an expert for a legally accurate HUF deed format. You can utilize Google to download the HUF deed online. Here you will find various formats that you can download according to your preference. However, E-Tax World does not recommend doing this, so you should seek assistance from a consultant to obtain the HUF deed or to complete the HUF registration process.

Hindu Undivided Family (HUF): A Brief Overview

A Hindu Undivided Family (HUF) Deed, or HUF, is acknowledged by the Indian Income Tax Law as a separate legal entity that symbolizes the joint family structure. It includes family members who are lineally descended from a common ancestor, as well as their wives and unmarried daughters. The Hindu Undivided Family (HUF) Deed concept is fundamentally embedded in Hindu Law and is employed to optimize income tax advantages and manage wealth.

Advantages of Establishing a HUF

Establishing a HUF provides a strategic approach for Hindu families to efficiently manage their financial assets and tax responsibilities. With appropriate establishment and oversight, a HUF can act as a significant instrument for building wealth, strategizing taxes, and ensuring financial security for upcoming generations. The advantages of establishing a Hindu Undivided Family (HUF) Deed are outlined below:

1. Tax advantages for income: According to the Income Tax Act, the HUF is regarded as an independent legal entity, enabling extra benefits of tax deductions and exemptions as per the Income Tax Act. Therefore, through the establishment of a HUF, the tax liability for every family member of the HUF is significantly lowered.
2. Asset management: Typically, the family head is entrusted with overseeing all the assets of the HUF. The centralized administration of family assets and properties enables improved oversight and efficiency.
3. Succession planning: A HUF aids in effective succession planning as the assets are passed down within the family with minimal difficulties.
4. Distinct legal entity: Because the HUF is acknowledged as a distinct legal entity, it can obtain loans, provide loans, and possess property, thereby enhancing the family’s financial flexibility.

Procedures for Establishing a HUF

Following are the steps to form a Hindu Undivided Family (HUF):

1. Formation of the HUF: The formation or establishment of the HUF account starts with the eldest male member of the family, referred to as ‘Karta,’ declaring his desire to create the HUF.
2. HUF Deed: The HUF deed serves as the foundation of the HUF. It outlines the specifics of the HUF members, their respective shares, and the activities of the HUF. While the HUF deed isn’t required, it offers clear documentation.
3. HUF Deed Format: The declaration issued by the Karta falls under the HUF deed format.
4. HUF Deed online: The Income Tax Department does not officially release any specified format of the HUF deed online or offline.
5. HUF deed download:  When you browse the internet, you will encounter various HUF deed formats; ‘however, it is crucial to verify if these formats are accurate from an income tax perspective.
6. PAN Application: To fulfill income tax obligations and engage in financial activities, it is crucial to obtain the Permanent Account Number (PAN) for the HUF.
7. Establishing the Bank Account:To efficiently handle the finances of the created HUF, it is essential to open a bank account in the name of that HUF.
8. HUF Registration (Optional): To ensure a robust legal standing, registering the HUF is vital, particularly for business-related reasons.

The Karta: Function in HUF

Typically, the oldest male family member is designated as the ‘Karta.’ The Karta serves as the administrator and protector of the HUF. He has the authority to make significant decisions affecting the finances of the HUF. These choices pertain to the assets, investments, and various financial issues of the HUF. The position of Karta is essential in the HUF since he oversees the welfare of every family member.

Members of a Hindu Undivided Family

Members of the HUF consist of all males who are directly descended from a shared ancestor and also their spouses. Unmarried daughters can likewise be members of HUF. After marriage, daughters can join their husband’s HUF. Every member has an equal entitlement to the family’s assets and income, overseen by the Karta

HUF Deed: Comprehensive Information

The Hindu Undivided Family (HUF) deed is a legal document that specifies the establishment, administration, and allocation of assets within the HUF, containing information about the members and their entitlements, and it is required to be registered.

The following key components are included in the HUF Deed:

1. Title and Date: The HUF Deed must indicate the title, outlining its purpose for creation and the date it was established.
2. Declaration: The HUF’s Deed opens with the family members stating their desire to establish an HUF.
3. Information about Karta: The name and information of the Karta, who is in charge of overseeing the HUF, must be indicated.
4. Member Information: The names and connections of the HUF members to the Karta must be specified in the HUF Deed. This part also indicates the portions allocated to the members.
5. Capital Contribution: The origin of the initial capital contribution of the HUF, whether from ancestral assets, gifts, or member contributions, must be specified in the HUF Deed.
6. Business Scope: If the HUF is established to operate a business, the Hindu Undivided Family (HUF) Deed must specify the nature and extent of the business activities.
7. Managing Bank Account: The Hindu Undivided Family (HUF) Deed must outline the rules for managing the bank account, usually by Karta.
8. Members’ Rights and Liabilities: The HUF Deed must include a section that outlines the rights and responsibilities of the members concerning asset utilization and income sharing.
9. Succession: The HUF Deed must outline the rules for the succession of HUF to the Karta’s role in the event of the Karta’s death or inability to function.

HUF Deed: Procedures for Creating a HUF Deed

Creating a Hindu Undivided Family (HUF) Deed consists of multiple steps to guarantee it satisfies legal standards and truthfully represents the family’s intentions:

1. Consultation: It is recommended to seek advice from a legal professional or tax consultant prior to establishing the Hindu Undivided Family (HUF) Deed to comprehend the tax consequences and configuration of the HUF.
2. Preparing the HUF Deed: Following the consultation, the HUF Deed may be drafted based on the information discussed in the previous step. When you finalize the HUF registration process through a consultant, the consultant takes full responsibility for creating the Hindu Undivided Family (HUF) Deed format. There is no requirement to download the Hindu Undivided Family (HUF) Deed online for HUF registration in India.
3. Signature and Witnesses: The Karta, along with all adult members of the Hindu Undivided Family (HUF) Deed must sign the HUF Deed in front of at least two witnesses.
4. Notarization: While notarization isn’t required, it enhances the legal standing of the HUF Deed.
5. Stamp Paper Creation: The Hindu Undivided Family (HUF) Deed must be drafted on the correct value of stamp paper determined by the state where the HUF is established.

Registration of a HUF Document

Although it is not compulsory to register the Hindu Undivided Family (HUF) Deed, doing so can improve the legal standing of the HUF. It will be advantageous in the long term when the HUF participates in substantial business endeavors or possesses significant assets. The procedure for registering the Hindu Undivided Family (HUF) Deed differs according to local or state regulations, typically requiring the deed to be submitted to the Sub-Registrar’s Office with the necessary fees and documentation.

Tax Obligations for an HUF

HUFs are required to adhere to the taxation rules for the tax year. The adherence to income tax for HUFs is largely comparable to that of individual taxpayers. Grasping these compliance aspects and the financial thresholds is crucial for HUFs to adhere to tax laws and secure the greatest advantages accessible to the HUF.

1. Filing of Income Tax Returns: HUFs are required to file their Income Tax Return (ITR) if their gross total income is more than INR 2,50,000 prior to making deductions under Section 80C to Section 80U. The deadline for submitting ITR is identical to that of individual taxpayers, which is July 31^st.
2. Audit Criteria: HUFs are required to have their accounts audited if their overall sales, turnover, or gross receipts surpass INR 1 Crore or INR 50 Lakhs in the tax year. Companies choosing the presumptive taxation scheme under Section 44AD, with over 5% of their transactions in cash, have a tax audit threshold of INR 2 Crore.
3. Advance Tax Payments: If the overall tax obligation after TDS goes over INR 10,000 in the tax year, the HUF is required to make advance tax payments. The advance tax must be paid in four parts: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15 of the financial year.
4. Tax Deducted at Source (TDS): If a Hindu Undivided Family (HUF) Deed sells a property for more than INR 50 Lakhs, TDS is applicable. The purchaser of the property is required to subtract 1% TDS from the transaction amount. If the rent paid by the HUF throughout the year surpasses INR 2,40,000, TDS at a rate of 5% must be deducted from the rent amount.
5. Tax Collected at Source (TCS): TCS regulations apply to HUFs engaged in certain incomes. The nature of the transaction influences the rates and terms and must meet the eligibility criteria established by the Income Tax Department.
6. Presumptive Taxation Scheme: The HUF deed can choose the presumptive taxation scheme under Section 44AD if their overall turnover or gross receipts do not exceed INR 2 Crore. Professionals are capped at INR 50 Lakhs for the presumptive taxation scheme.
7. GST Registration: HUFs involved in providing goods and services need to secure GST registration if their annual turnover surpasses INR 20 Lakhs (INR 10 Lakhs for North Eastern and Hill States) during the tax year.

This article will help you understand HUF deed format, HUF PAN card, HUF tax benefits, and the HUF registration process.

We are happy to announce that E-Tax World is the leading choice for HUF registration services in India.