HUF taxation rules
A Hindu Undivided Family (HUF) taxation rules is a legal entity recognize under Indian law and operates based on the principles of the joint family system.
Here’s how an HUF typically works:
Formation:
An HUF is form when members of a Hindu family come together under a common ancestor and decide to operate as a joint family. The eldest male member, known as the Karta, manages the affairs of the HUF.
Joint Property:
The HUF typically holds joint family property, which includes ancestral property as well as property acquired through the income or efforts of the family members. The property is consider to be own collectively by the HUF and not by individual members.
Income and Expenses:
The HUF can generate income through various sources such as business activities, investments, or rental income from properties. The income earned by the HUF is manage and utilize for the benefit of all its members. Expenses, including household expenses, education, medical needs, etc are generally met from the income of the HUF.
HUF Bank Account:
An HUF typically maintains a separate bank account in its name for managing its financial transactions. The Karta has the authority to operate the bank account on behalf of the HUF.
Taxation:
HUF is treated as a separate entity for income tax purposes. It must obtain a separate Permanent Account Number (PAN) and file income tax returns. The income earned by the HUF is tax at the applicable slab rates for HUFs.
Succession and Inheritance:
In an HUF, the property passes from one generation to the next through the principle of survivorship. Upon the demise of the Karta, the eldest male member becomes the new Karta, and the HUF continues to function.
Dissolution:
An HUF can be dissolve either by partition or by complete disruption of the joint family status. Partition involves dividing the HUF property among its members, whereas disruption refers to the cessation of the joint family status and the conversion of the HUF into individual properties.
