What is an HUF account?
HUF stands for Hindu Undivided Family. The Hindu Law defines the HUF as a family, which consists of male lineal descendants of a family, including the husband, wife and children. The Income Tax Act and Wealth Tax Act recognize the HUF as an independent taxable entity and will have its own PAN Number and Bank accounts.
Hence, HUFs can also have its own assets and liabilities and even regular source of income, which should be taxed separately and enjoy all the deductions and exemptions under the IT Act independent of the income and tax liabilities of its members.
For example, Mr. Shrinivasan is married and earns a salary of 10lacs per year, and rent on his ancestral residential property of Rs. 2 lacs per year. So, a distinct entity can be created including his wife and children as “SHRINIVASAN HUF”, then the rent arising can be shown as the whole family income (HUF) and not as income of Mr. Shrinivasan and it can be taxed separately.
Similarly, an HUF trading & demat account can be opened for managing the securities of a family under the name of “SHRINIVASAN HUF” and any income arising from the investment can be taxed under HUF Income.
The account is managed by a ‘Karta’ who is a male member of the family and other members of the family are termed as ‘Co-parceners’. Karta manages the HUF account on behalf of the Co-parceners.
Who can form an HUF?
- The Hindus, Sikhs, Buddhists and Jains are eligible to form an HUF.
- For creating the HUF one need to get married, there is no need to have child or children for creating the HUF.
- The senior-most male member is designated as the karta and is the authorised signatory of the Hindu Undivided Family
- The HUF can be created with the money received as gift from ancestors or via the transfer of any ancestral assets.
Tax Benefits on a HUF Account
Under the Income Tax Act, an HUF is a separate entity for the purpose of income tax return. The same tax slabs are applicable to HUF as to individual assessee. Tax rebates and deductions can be availed under section 80 C for HUF account.
Documents required to open an HUF Trading & Demat Account?
- Latest Color Photograph of Karta
- HUF will have a unique PAN card; this PAN card along with the PAN of Karta should be produced.
- A declaration form, duly stamped, where every member or co-parceners in the HUF, has to make a signature stating that they are the only members of the HUF, and authorize the Karta to open and operate the DP and Trading accounts on behalf of each member of the HUF
- Proof of Bank Account in the name of HUF: Any one of the following may be submitted
- Copy of first page of the Bank Pass Book
- A cancelled cheque with clients name, account name and bank address printed on it
- If any of these details is not printed on cheque, then latest bank statement (6months) with Client name, address, account number and bank address printed
- Copy of Financial Details, if opted for trading in derivatives segment
- Proof of identity of the Karta
- Proof of address of the Karta
- Karta should sign the Trading Account Opening Form and other documents under the stamp (seal) of the HUF. All KYC documents to be attested by the Karta.
FAQs for HUF account
Q. Whether the HUF account can be opened with joint holder(s)?
A. No. HUF account cannot be opened with joint holder(s).
Q. Whether nomination can be recorded for a HUF account?
A. No. HUF accounts cannot appoint a nominee.
Q. Who will sign the account opening form of HUF?
A. The Karta should sign the account opening form under the HUF stamp.
Q. Whether HUF account can appoint a POA?
A. Yes. POA can be appointed for an HUF account.
Q. Whether a new trading & demat account is to opened in the event of death of Karta?
A. HUF is an entity and it does not come to an end in the event of death of the Karta. In such a case, the members of the HUF will appoint the new Karta.
For complete list of the documents required for Issuance of New PAN Card or Reprint of the PAN Card, Refer to the Tax Information Network of Income Tax Department
Apply Online for a New PAN Card by filling FORM 49A
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