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 Hindu undivided family will be through lineal ascendants or any ancestors. There are a set of laws that govern property ownership, marriages, taxation etc for a legally declared HUF (Hindu undivided family). This department of India has a format of taxation for a HUF, tax benefits can be availed from this format. The main use of HUF (Hindu undivided family) is for Tax management. This HUF (Hindu undivided family) is a separate entity for Tax purposes. This means the income of HUF is treated to be separate from the income of the Karta and of /or coparceners. Here, we are going to focus on HUF Demat Account Documents with the reference in Zerodha (No. 1 Broker in India). Zerodha provides both trading and demat account facilty together.
HUF (Hindu undivided family) accounts :
HUF (Hindu undivided family) is the senior most male member of the family and in financial terms of Karta. He can also be called manager of the Hindu undivided family. In this HUF account, a corpus is created where every family member can pool their income. The corpus will be handled by or authorized to handle by Karta who is the head of the family. Signature of Karta will be required for every transaction from the bank in this HUF accounts. 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 the income of members is being pooled.
Features of HUF account :
- The main features of HUF (Hindu undivided family) account are 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 HUF (Hindu undivided family) account corpus can be divided only on 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 (Hindu undivided family) accounts will have a unique PAN card, this PAN card along with the PAN of Karta should be produced.
- A declaration form will be provided where every member has to make a sign stating the name of Karta and declare of HUF account.
- They are the only members of HUF (Hindu undivided family).
- Karta to have sole authority over HUF (Hindu undivided family) account.
- Every transaction on behalf of HUF (Hindu undivided family) account, 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 HUF (Hindu undivided family) account is opened.
What are the documents required to open a HUF account at Zerodha?
A HUF may open an account at Zerodha after duly submitting the below documents:
The Karta seal or stamp is mandatorily required on all the signature fields and proofs required. All KYC documents are also required to be attested by the Karta in 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 HUF (Hindu undivided family) and the PAN card copy of the Karta.
- Address proof copy of the HUF (Hindu undivided family) 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 (Hindu undivided family) indicating its existence.
- Photocopy of the PAN card of the Co-parcener.
- Duly filled annexures required.
Tax benefits on a HUF account :
After HUF Demat Account Documents, let’s focus on the tax benefit on a HUF account.
- Since the account of HUF (Hindu undivided family) 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 HUF (Hindu undivided family) account.
- Corpus can be used for investment in tax-free money instruments of HUF (Hindu undivided family) account.
How is HUF taxed?
- HUF (Hindu undivided family) 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 HUF (Hindu undivided family).
- Deductions under Section 80 and other exemptions can be claimed by the HUF (Hindu undivided family) account in its income tax return.
- HUF (Hindu undivided family) account can take an insurance policy on the life of its members.
- HUF (Hindu undivided family) account can pay salary to its members if they are contributing to its functioning and work of the joint Hindu family business. This type of salary expense can be deducted from the income of HUF (Hindu undivided family) account.
- Investments can be made from HUF’s income. Any returns from these investments are taxable in the hands of the HUF (Hindu undivided family) account.
- A HUF (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 HUF (Hindu undivided family) is formed by a family.
- A HUF (Hindu undivided family) is automatically created at the time of marriage.
- HUF (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.
- HUF (Hindu undivided family) usually has assets which come as a gift, a will, or 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 (Hindu undivided family) is formed it must be formally registered in its name. A HUF (Hindu undivided family) should have a legal deed. The deed shall contain details of HUF (Hindu undivided family) members and the business of the HUF. A PAN number and a bank account should be opened 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 HUF (Hindu undivided family) is that its members have equal rights on the property. The common property cannot be sold 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 (Hindu undivided family) and get equal rights. A HUF (Hindu undivided family) can get too large to manage.
- Partition: Perhaps the worst nightmare of opening a HUF (Hindu undivided family) is closing it down. The only way a HUF (Hindu undivided family) can be dissolved is by a partition. All members have to agree to dissolve the HUF (Hindu undivided family). Under a partition of HUF (Hindu undivided family), assets are distributed to members which can lead to a lot of disputes and can be a lot of legal hassle.
- Joint family system losing relevance: HUF (Hindu undivided family) was recognized as a separate taxable entity by the income tax department. However, in today’s times, where nuclear families are the norm, HUF (Hindu undivided family) is losing relevance. Several cases of HUF have come to fore where couples or families are fighting it out on common household expenses, forget to pool in of assets. Divorce rates are rising and therefore, HUF (Hindu undivided family) as a tax vehicle is losing importance.
- HUF (Hindu undivided family) continues to be assessed as such till partition: Once a HUF (Hindu undivided family) is formed, client, must continue to file its tax returns unless a partition takes place. Any claim for partition is made to the assessing officer of HUF. The assessing officer of HUF (Hindu undivided family), 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 HUF (Hindu undivided family). If the member forms another HUF (Hindu undivided family) with his wife and children, the income of the property which was transferred from the original HUF (Hindu undivided family) is taxed in the hands of new HUF.
The content HUF Demat Account Documents contains lots of relevant information regarding HUF Demat Account Documents, charges, advantage-disadvantage, these can help an individual to get a better idea about investment.