In this post, we'll look at the tax advantages accessible to a HUF, how it may open a bank account and obtain a HUF PAN card.
An efficient way for your family to save money on taxes is by creating a Hindu undivided family (HUF), which is recognized as a distinct legal entity under Section 2(31) of the Income Tax Act of 1961. Apart from its constituents, HUF files income tax returns under a different Permanent Account Number (PAN). Remarkably, the law also allows communities of Sikhs, Buddhists, and Jain people to establish a HUF.
What is HUF?
HUF, an abbreviation for Hindu Undivided Family under Hindu Law, comprises all living individuals who share a common ancestor, along with the wives and daughters of these individuals.
As per a section of the Income-tax Act of 1961, HUF is categorized as a “person” for assessment purposes under the Act. Functioning as an independent tax-filing entity, HUF possesses its own Permanent Account Number (PAN). The key constituents of HUF include the “karta,” typically the eldest member or head of the family, and other family members.
The day-to-day affairs of HUF are overseen by the “karta,” with children being recognized as coparceners of their father’s HUF. Even upon marriage, a daughter retains her coparcenary status in her father’s HUF while also becoming a part of her husband’s HUF. It’s noteworthy that Jain and Sikh families can establish HUFs, even if not bound by Hindu law.
HUF Eligibility
Forming a Hindu Undivided Family (HUF) can offer significant tax advantages, but certain conditions must be met:
- An individual cannot form an HUF alone; it must be formed by a family
- A HUF can be established upon marriage, including the husband, wife, and their children
- An HUF consists of a common ancestor and all his lineal descendants, along with their wives and unmarried daughters
- Hindus, Buddhists, Jains, and Sikhs are eligible to form HUFs.
- An HUF typically possesses assets received as gifts, through wills, as ancestral property, from the sale of joint family property, or contributions from HUF members to the common pool.
- Once formed, a HUF must be formally registered. This includes:
- Creating a legal deed that details the HUF members and the business of the HUF.
- Obtaining a PAN number in the name of the HUF.
- Opening a bank account in the name of the HUF.
HUF Deed Creation
A HUF must first be formed by establishing a corpus. Any assets left to a will or ancestral property, as well as any donations from a relative, might be utilised to establish a corpus. Once the corpus has been established, the HUF deed may be prepared.
The deed must be written on stamp paper and signed by the Karta, coparceners, and members. The deed should also specify the address, bank information, and source of income from which the corpus will be funded. The deed must include a declaration (by the Karta) specifying all coparceners and members authorised to conduct financial operations.
Tax Benefits Available to HUFs
Hindu Undivided Families (HUFs) in India enjoy distinct tax advantages as separate entities under income tax laws. Here are the key points to understand:
- HUFs are eligible for independent income tax deductions, including those under Section 80C
- They can claim deductions under multiple sections such as 54 (B, D, EC, F, G) and 47
- All resident and non-resident HUFs in India are entitled to a standard tax deduction of ₹2.50 lakh per year
- HUFs can claim up to ₹1.50 lakh deduction under Section 80C for the principal repayment of a home loan. They can also claim deductions under Section 24B for interest paid on a home loan
- Under Section 54F, HUFs can avail tax deductions on long-term capital gains by investing in a residential house property, provided they do not own more than one house at the time of sale.
- Gifts received by HUFs up to ₹50,000 are tax-free.
It’s important to note that both the HUF and its individual members cannot claim deductions for the same investment or expense. Each deduction must be properly allocated and claimed to maximise tax benefits.
Who Can be Included in an HUF Pan Card?
- An HUF can be created by a joint family of, say, for instance, a father and two sons, all married and doing business together. Anyone by birth is also included in the family.
- A husband and wife can also form an HUF for tax benefits and to share the income earned from collective and ancestral properties. The eldest male member becomes the Karta (or the head) and has the authority to operate the accounts and other assets under the HUF.
The members of the family that can be included in Pan Card for HUF are:
- Sons and daughters (married and unmarried)
- Husbands and wives
- Grandsons and great-grandsons
Both sons and daughters are termed coparceners (as per amendments to the Hindu Succession Act, all daughters are now also classified as coparceners) and have the right to become the next Karta, in the event of the death of the present one. Anyone by birth or marriage will become a member of the HUF. However, only coparceners can succeed the Karta. Members do not have this privilege.
How to Get a PAN Card for HUF?
An HUF is a distinct legal entity, similar to a corporation or partnership. As a result, it can apply for a PAN card in its own name. Without a PAN card, a HUF won’t be unable to perform any of the financial functions a HUF is set up to do.
Documents Required for HUF PAN Card Application
- The name of the HUF (or the name of the Karta, followed by ‘HUF’)
- HUF’s address and residence proof
- Copy of Karta’s Aadhaar card;
- Copy of Karta’s Voter ID;
- Copy of Karta’s driver’s license or passport;
- Copy of Karta’s Ration card;
- Source of income to the corpus
- Names, father’s name and addresses of all HUF coparceners, with affidavit from the Karta
- Signature of the Karta on duly filled Form 49A.
If all of the documentations are in order, the HUF PAN card should follow within 21 days after application submission. You can check its status here.
Checklist to Open an HUF Bank Account
The HUF can immediately establish a bank account once the HUF PAN card arrives. The following documents/information are required:
- The name of the HUF
- Photograph of the Karta
- Proof of address and identity of the Karta
- PAN card and PAN number of the HUF
- The list of coparceners and members
- A declaration by the Karta as to which members and coparceners are authorised to operate the bank account
- Any further details as demanded by the bank, at the time of the opening of the bank account
The bank account will be in the names of the HUF and the Karta, and it will be accessible only to those authorised by the Karta. Do note that an Huf Pan Card bank account is a current account, which may incur higher bank fees.
Conclusion
The PAN card for Hindu Undivided Families (HUFs) plays a crucial role in their financial landscape, enabling them to leverage distinct tax benefits and manage their affairs as a separate legal entity. With independent deductions under various sections of the income tax laws and specific provisions for capital gains and home loan repayments, HUFs can optimise their tax liabilities effectively. The PAN card facilitates transparency and compliance, ensuring that HUFs operate within the legal framework while maximising their financial advantages. At Vakilsearch, we offer comprehensive services to assist Hindu Undivided Families (HUFs) in obtaining their PAN card efficiently. Our expertise ensures that HUFs can navigate the complexities of tax compliance seamlessly, leveraging the PAN card to access independent deductions under various income tax sections.
Frequently Asked Questions
Is it mandatory for Hindu Undivided Families (HUFs) to obtain a PAN card?
No, obtaining a PAN card is not mandatory for HUFs. However, it's highly recommended for various financial transactions and tax benefits. What is the purpose of having a PAN card for an HUF in India? Facilitates financial transactions exceeding specific limits. Enables filing income tax returns for the HUF. Prevents misuse of HUF funds and ensures transparency.
Who in the HUF is responsible for applying for and managing the PAN card?
The Karta, or the head of the HUF, is responsible for applying for and managing the PAN card for the HUF.
What documents are required for applying for a HUF PAN card?
The documents required for applying for a PAN card for an HUF include the name of the HUF or the Karta, HUF's address and residence proof, and a copy of the Karta's Aadhaar card.
Can an HUF have multiple PAN cards for different members or business activities?
No, an HUF cannot have multiple PAN cards for different members or business activities. Only one PAN card is issued to an HUF.
Is there a specific format for the PAN card application for Hindu Undivided Families?
Yes, Form 49A is used for applying for a PAN card for HUF in India.
What is the processing time for obtaining a PAN card for an HUF in India?
The processing time for obtaining a PAN card for an HUF in India is typically 15-20 business days.
What happens if there are changes in the HUF structure or details after obtaining the PAN card?
The processing time for obtaining a PAN card for HUF in India is typically 15-20 business days.
Are there any fees associated with applying for or updating a PAN card for an HUF?
Yes, there are fees associated with applying for or updating a PAN card for an HUF, which may vary depending on the specific circumstances.
How can an HUF track the status of their PAN card application?
HUFs can track the status of their PAN card application by visiting the official website of the Income Tax Department and using the application number or acknowledgement number.
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