HUF (Hindu Undivided Family) is a family with husband, wife, and children also children’s spouses if any living together. The property owned by this entity will be through lineal ascendants or any ancestors. There are a set of laws that govern property ownership, marriages, taxation, etc for a legal HUF. This department of India has a format of taxation for a HUF. They can avail of tax benefits from this format. In this post, we will discuss HUF Demat Account Documents to open an account in Zerodha.
Benefits of Demat Account in the Name of a HUF
The main use of Hindu Undivided Family is for Tax management. This HUF is a separate entity for Tax purposes. This means the income of HUF is separate from the income of the Karta and of /or coparceners. Here, we are going to focus on HUF Demat Account Documents with reference to Zerodha (No. 1 Broker in India). Zerodha provides both trading and demat a/c facility together.
HUF (Hindu Undivided Family) Demat Account Structure
In a HUF the senior most male member of the family in financial terms is the Karta. He is also the manager of the HUF. In this HUF account, they will create a corpus, where every family member can pool their income. Karta, who is the head of the family, will handle the corpus. They require the signature of Karta for every transaction from the bank in this HUF account. Also, these HUF accounts are similar to individual saving bank accounts. The HUF account has various tax benefits which are available for an individual’s account while they pool the income of all members together.
Features of HUF Demat Account :
- The main feature of the HUF account is every member of the family can deposit their income in the common corpus.
- Single person’s authority while participation from the entire family.
- HUF account in tax benefits on deposits under various sections.
- In this Hindu Undivided Family, they can divide the account corpus only on the agreement of every coparcener of the family.
HUF Demat Account Documents in Zerodha
Now, let’s focus on HUF Demat Account Documents. Here, you will get a list of important HUF Demat Account Documents in Zerodha.
- HUF accounts will have a unique PAN card, They must produce this PAN card along with the PAN of Karta.
- There is a declaration form that every member has to sign stating the name of Karta and declaring of HUF account.
- They are the only members of the HUF.
- Karta is to have sole authority over the HUF account.
- Every transaction on behalf of the Hindu Undivided Family account is made by each member of the family which is governed by Karta.
- Residential proof of Karta.
- Identification proof of Karta.
Apart from the points mentioned above, there can be other documents or conditions depending on the bank where they opened the HUF account.
The Procedure of Opening a Demat Account in the Name of a HUF in Zerodha
A HUF may open an account at Zerodha after duly submitting the below documents:
The Karta seal or stamp is mandatory on all the signature fields and proofs required. Karta must attest all KYC forms for the HUF account.
- Duly filled documents of the Trading and Demat and/or Commodity forms along with the photograph of the Karta and signed across by him.
- The PAN card copy of the Hindu Undivided Family and the PAN card copy of the Karta.
- Address proof copy of the HUF and the address proof copy of the Karta of the HUF.
- Income proof in the form of the Bank Passbook or Statement of the HUF indicating its existence.
- Photocopy of the PAN card of the Co-parcener.
- They also require duly filled annexures.
Tax Benefits on a HUF Demat Account :
After HUF Demat Account Documents, let’s focus on the tax benefit of a HUF account.
- Since the account of HUF account is equivalent to an individual’s account there are various tax benefits.
- According to the IT Act, tax rebates, and deductions can be availed under sections 80C, 88, and 80L for Hindu Undivided Family accounts.
- They can use the corpus for investment in tax-free money instruments of a HUF account.
Tax Calculation on a HUF
- HUF account has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members of the Hindu Undivided Family.
- They can claim the deductions under Section 80C and other exemptions by the HUF account in its income tax return.
- Hindu Undivided Family account can take an insurance policy on the life of its members.
- HUF account can pay salaries to its members if they are contributing to the functioning and work of the joint Hindu family business. They can deduct this type of salary expense from the income of the Hindu Undivided Family account.
- They can invest from HUF’s income. Any returns from these investments are taxable in the hands of the HUF account.
- A Hindu Undivided Family account is taxed at the same rates as an individual.
How to form a HUF?
In the content HUF Demat Account Documents, we will discuss how to form HUF.
- One person cannot form HUF. A Hindu Undivided Family is formed by a family.
- A HUF is automatically created at the time of marriage.
- Hindu Undivided Family consists of a common ancestor and all of his lineal descendants, including their wives and unmarried daughters.
- Hindus, Buddhists, Jains, and Sikhs can form HUFs.
- Hindu Undivided Family usually has assets that come as a gift, a will, ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
- Once a HUF is formed it must be formally registered in its name. A Hindu Undivided Family should have a legal deed. The deed shall contain details of HUF members and the business of the HUF. They should also apply for a PAN number and open a bank account in the name of the HUF (Hindu undivided family).
The Limitation of Forming a HUF
Equal Rights of Members
The greatest disadvantage of opening a Hindu Undivided Family is that its members have equal rights on the property. They can not sell the common property without the concurrence of all the members of HUF. Any additions to the family, by way of birth or marriage, become a member of the HUF and get equal rights. A HUF (Hindu undivided family) can get too large to manage.
Partition
Perhaps the worst nightmare of opening a HUF is closing it down. The only way one can dissolve a Hindu Undivided Family is by partition. All members have to agree to dissolve the HUF. Members of a Hindu Undivided Family can lead to a lot of disputes and legal hassle over the distribution of assets if they go through a partition.
Joint Family System Losing Relevance
HUF is a separate taxable entity in the eyes of the income tax department. However, in today’s times, where nuclear families are the norm, Hindu Undivided Family is losing relevance. Also, several cases of HUF have come to the fore where couples or families are fighting it out on common household expenses, forgetting to pool in assets. Divorce rates are also rising and therefore, Hindu Undivided Family as a tax vehicle is losing importance.
HUF (Hindu Undivided Family) Continues to be Assessed as such till Partition
A client must file the tax returns of their Hindu Undivided Family) continuously unless a partition occurs. The assessing officer of HUF will consider any claim for partition. The assessing officer of HUF, on receiving such a claim, must make an inquiry after giving due notice to the members. Income from the property which was partitioned is taxed as individual income of the member of the Hindu Undivided Family. If the member forms another HUF with his wife and children, the income of the property which was transferred from the original Hindu Undivided Family is taxed in the hands of the new HUF.
Conclusion
In conclusion, having the correct huf demat account documents in place is essential for a successful and secure transaction. It is also important to remember that these documents are necessary not only when opening an account but periodically throughout your tenure as a customer. Taking all of this into consideration will ensure that you have smooth transactions with no unforeseen issues or problems arising due to incorrect documentation.
