What is HUF?
The Joint Hindu Family Business (JHFB) or Hindu Undivided Family (HUF) is a type of business organisation that can only be found in India. This is not a legal business entity anywhere else worldwide.
The Hindu Undivided Family (HUF) or Joint Hindu Family Corporate (JHF) is a one-of-a-kind form of business entity. It is governed and directed by Hindu Law, one of the several religious laws that exist in India.
So, who exactly is a member of such an organisation? Anyone born into the family (boy or girl) up to the next three generations is a member of the HUF. These individuals are the co-parceners. The eldest member of the family, the “Karta,” is the head of such a Joint Family Business.
How to create a HUF?
- Make a HUF Deed: It is a formal legal document printed on stamp paper that clearly shows the names of the ‘Karta’ and the co-participants (other members). In addition, each family member makes another statement in which they announce the name ‘Karta’ and agree that the ‘Karta’ holds the authority of the HUF account and has the power to supervise all transactions of the HUF account on their behalf. The members specified in the deed are the sole members of the HUF.
- Request a HUF PAN Card: Since, the HUF is treated as a separate organisation for tax reasons, it requires a separate PAN card. In order to apply for a PAN Card, you must complete Form 49A. It is possible to accomplish it both offline and online.
- Create a HUF bank account: A HUF must have a separate bank account that receives all payments. It is possible to open it in any bank.
How is HUF taxed?
- Section 80 deductions and other applicable exclusions are available to HUFs.
- Allowed to purchase insurance policies for its members.
- Allowed to pay salary to its members if they contribute to the operation of the HUF.
- Investment from HUF income is permitted, and the earnings on such investments are taxable
Advantages of HUF
- A Hindu Undivided family is made up of family members who own and operate a business. There is room for disagreements and conflicts in any organisation. However, since the Karta has absolute power and makes all choices on his own, it will result in successful administration.
- A HUF, like a company, has an indefinite existence. Even the death or retirement of one member of the Karta has no effect on it, and it will continue to exist.
- Because the co-parceners have no actual authority over the management of the HUF and all power rests with the Karta, the members’ liability has likewise been limited to their part of the property. This maintains the balance of power and responsibility.
- There is also a sense of loyalty and collaboration because all members of the HUF are relatives and members of the same family. Members’ trust is also present, which leads to overall cooperation.
Disadvantages of HUF
- Other than family members, no outsiders may be introduced to the HUF. This makes obtaining further financing from the market extremely difficult. With minimal capital, the chances of growth are slim. It restricts the scope of the company’s operations.
- While the Karta wields all power, he also bears boundless culpability. As a result, he may be unduly cautious and timid in his commercial transactions. As a result, the company may suffer. Another consideration is that he may be held accountable for the acts of other members.
- Furthermore, the Karta’s full authority over general commercial and financial choices causes friction among the HUF. His actions and commercial skills may be questioned by other members, causing problems inside the organisation.