HUF Formation
Set up your own HUF entity to avail various tax benefits Starting At ₹ 2499/- (Onwards) + GST
It just Takes 7 to 10 business days (subject to Government processing time). No Hidden Cost
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Members of HUF
An HUF consists of:
Karta: Karta is generally the father of the family or the senior most person of the family who has the right to do all the things for the family and take all the decisions on the behalf of the family.
Co-Parceners:Coparcener is the person who has the right to demand the share of the property of family if he/she wants to part away with the family with his/her share. All the coparceners have equal right in the HUF.
Supreme Court has clarified two points in respect to rights of Daughters in HUF:
- In its objects have promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- Intend to apply its profits, if any, or other income in promoting its objects; and
- Intend to prohibit the payment of any dividend to its members,
Not all members of the HUF are its coparceners. The co-parcenery extends to four degrees down the family hierarchy in the following manner:
- 1st degree: Holder of ancestral property for the first time.
- 2nd degree: Sons and daughters
- 3rd degree: Grandsons.
- 4th degree: Great grandsons.
How to create HUF?
Step 1
Create an HUF Deed
Step 2
Apply for PAN of HUF
Step 3
Open HUF Bank Account
Step 4
Transfer/Introduce HUF Assets
Documents Required
PAN Card of Members
Identity Proof of Members
Address Proof of HUF
Details of Property & Assets
HUF Deed
Bank Account Details
Process of Forming a HUF
Formation of HUF can be done in 3 steps which have been summarized below:
It is a formal document with Stamp paper of respective stamp of considerable value as per the state of registration. Deed shall state the names of the Karta and the Co-parceners (Members) of the HUF along with a declaration filed by all the members and co parceners.
On registration of Deed, a HUF can apply for PAN of its own. Once the PAN Card has been allotted, the HUF can claim benefit of income tax slab rates and deductions and exemptions which are available to an Individual.
With the help of above documents a HUF can open a Bank Account through which it will make all the transaction. A HUF Account can be opened in any bank account. The UF would also be required to have a Rubber Stamp of the HUF and all documents pertaining of the HUF should be properly stamped.
What other Registrations can be taken for an HUF?
Although HUF doesn’t require any specific registrations to operate a business, it is advised to obtain the following registrations to make the business function smoothly.
Registering under MSME Act (Udyam)
An HUF can get registered under the MSME Act by applying for Udyam Registration number. Udyam registration provides various benefits which are provided by Government authorities for promoting specific industries.
GST Registration is required if annual turnover is more than Rs. 20/40 lakhs. Also, if the HUF is doing online business then it is required to get a GST number.
Benefits of registering a HUF:
The major benefit in opening a HUF is that it can provide you with additional tax benefits that may help reduce your tax burden. Some of the benefits available have been summarized below:
An HUF is a separate entity from a legal point of view and the HUF has its separate PAN card. An HUF can run its own business to generate income. It can also invest in shares and Mutual Funds. And being a separate entity, the HUF enjoys a basic tax exemption of Rs 2.5 lakh. So, imagine that you create an HUF consisting of you, your spouse and two children. In addition to income tax benefits you enjoy individually, you can also avail of an additional basic income tax exemption of Rs 2.5 lakh each year.
Under current income tax laws, if you own more than one self-occupied property, only one of them can be claimed as a self-occupied property. The rest are ‘deemed to be let out’ and you have to pay tax on notional rent. However, an HUF can own a residential house without having to pay tax. In addition, it can also avail of a Home Loan to purchase a residential property and get tax benefits up to Rs 1.5 lakh under Section 80C of the Income Tax Act for loan repayment and up to Rs 2 lakh for interest thereon.
Provisions of the Income Tax Act allow individuals to claim tax benefits on certain payments they make during a year. Similar benefits are applicable for an HUF. For example, an HUF can pay Life Insurance premium for individual members, and claim tax benefits under Section 80C. The maximum amount that can be claimed as a deduction under this section is Rs 1.5 lakh.
An HUF is allowed to make investments in tax-saving Fixed Deposits and Equity Linked Savings Scheme (ELSS) to earn tax benefits of up to Rs 1.5 lakh under Section 80C. And while an HUF cannot open a Public Provident Fund (PPF) in its name, it can claim tax deductions for the amount deposited by the HUF in respective PPF accounts of its members.
Characteristics of Section 8 Company
- Object in the Memorandum of Section 8 Company can only have objects such as, promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc.
- Can be incorporated as a limited Company either a Private Limited Company or a Public Limited Company without addition of word”Limited”, or as the case may be, the words “Private Limited”.
- The name of a Section 8 Company must end with the words like Foundation, forum, association, federation, chambers, council, electoral trust. Etc.
- Minimum of 2 Director and 2 members in case of Private Limited and a Minimum of 3 Directors and 7 members in case incorporated as Public Limited Company.
- No Minimum or Maximum requirement of Capital for Sec 8 Company.
- During the Incorporation, on complete documents submission, Ministry will first issue License under Section 8 (1) of The Companies Act, 2013 in the form of INC 16, thereafter other documents such as COI, PAN, TAN etc. are issued.
- After the Incorporation, Section 8 Company can take Taxation benefits provided under Income Tax Act, 1962 by getting registration under Section 12AA and 80G.
- Any profit or income made by the company can be only applied towards promoting the objectives of the company and cannot be distributed as dividends to its members.
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