1. Any Hindu, Sikh, Jain or Buddhist man can form an HUF, provided he is married.
2. All male lineal desendants of the Karta and his daughters are called coparceners in the HUF, have equal rights in it and can demand its partition.
3. Wives of the Karta and male coparceners, as well as their granddaughters, are called members of the HUF and have right over the property, but cannot demand partition.
4. Only a coparcener can become a Karta, who is normally the senior most male, and may continue to be so even if he becomes aged, infirm, ailing, or even a leper.
5. A junior coparcener can be Karta only if the seniormost gives up the right to be so.
6. There can be more than one karta of a HUF, but only with mutual consent of other coparceners.
7. Even an elder minor could act as the Karta if no major is left in the family.
8. A female coparcener can be a karta in three situations:-
a) when males have given her the permission,
b) when sons are minors, and
c) when there are no males in the family.
9. An HUF that has only females left can also continue to exist with a female karta.
10. A husband and wife can alone form an HUF, but the wife being a member and not a coparcener, therefore, only the birth of a child will give their unit the status of an HUF for tax purposes.
11. The Karta can gift money to the coparceners from the income earned by the HUF, which is tax-free income in their individual hands.
12. The dissolution of the HUF does not attract any capital gains tax on the HUF, and the amounts received by the coparceners is tax-free income in their hands.
13. An application for getting this fact of dissolution recognized will have to be made to the income tax assessing officer.
16. It is also useful for high-income taxpayers with a high savings rate, as they can distribute their investments to get more tax benefits through the additional deduction available to the HUF.
17. It is also suitable for tax payers who wish to avoid clubbing provisions of the income earned by other family members, by transferring suitable personal assets to the HUF.
2. All male lineal desendants of the Karta and his daughters are called coparceners in the HUF, have equal rights in it and can demand its partition.
3. Wives of the Karta and male coparceners, as well as their granddaughters, are called members of the HUF and have right over the property, but cannot demand partition.
4. Only a coparcener can become a Karta, who is normally the senior most male, and may continue to be so even if he becomes aged, infirm, ailing, or even a leper.
5. A junior coparcener can be Karta only if the seniormost gives up the right to be so.
6. There can be more than one karta of a HUF, but only with mutual consent of other coparceners.
7. Even an elder minor could act as the Karta if no major is left in the family.
8. A female coparcener can be a karta in three situations:-
a) when males have given her the permission,
b) when sons are minors, and
c) when there are no males in the family.
9. An HUF that has only females left can also continue to exist with a female karta.
10. A husband and wife can alone form an HUF, but the wife being a member and not a coparcener, therefore, only the birth of a child will give their unit the status of an HUF for tax purposes.
11. The Karta can gift money to the coparceners from the income earned by the HUF, which is tax-free income in their individual hands.
12. The dissolution of the HUF does not attract any capital gains tax on the HUF, and the amounts received by the coparceners is tax-free income in their hands.
13. An application for getting this fact of dissolution recognized will have to be made to the income tax assessing officer.
14. HUF is an effective and popular tool, which has distinct PAN and existence, to make investments and save on taxes as tax laws treat it as an independent entity which is entitled to the same tax deductions and exemptions as an individual taxpayer.
15. Through this tax-planning tool, one can substantially reduce one’s tax liability, and is especially suitable for the taxpayers who also have income from ancestral property and expect to inherit financial assets, as they will be able to divert the inheritance to the HUF, thus preventing their personal tax liability to shoot up.16. It is also useful for high-income taxpayers with a high savings rate, as they can distribute their investments to get more tax benefits through the additional deduction available to the HUF.
17. It is also suitable for tax payers who wish to avoid clubbing provisions of the income earned by other family members, by transferring suitable personal assets to the HUF.
18. The real benefits of HUF actually arise out of having another "taxpayer" entity who enjoys similar benefits as you - which is substantial if you consider the HUF's entire lifespan.
20. Except for salary, the HUF can invest and earn from all the other basic heads of income, like capital gains, rent, profit from business, and income from other sources.
21. If a person's (or his family's) wealth like residential property and gold is owned in the name of the HUF, it reduces wealth tax liability too.
22. If your second house is lying vacant, you can save tax on its notional rent income if the property belongs to your HUF.
23. Even splitting a small-scale business between the individual and his HUF will keep the sales turnover within the prescribed limit of small-scale industries and allow both entities to avail of the exemptions and incentives provided by the government, to ensure healthy margins.
24. Investing in IPOs through HUF has twin benefits: the retail investment limit is not breached, and there is a greater probability of more shares being allotted.
25. If there are enough people in the HUF, a karta can get a group health insurance cover, or a family floater plan which allows maximum relatives, at a lower premium than that of an ordinary plan, besides a separate tax deduction, even if the karta dies in due course of time and a new proposer takes over from him.
26. If the karta does not have a high income, the HUF can also pay him a reasonable salary, for his services towards the HUF, commensurate to his skills, the nature of its business and time devoted by him towards it, provided it does not seem to be done to gain a tax arbitrage.
27. This salary will be taxable in the hands of the karta as an individual, and may even fall within his non-taxable income, while it will be fully deductible from the HUF income.