What Is the Full Form of HUF in Income Tax?
The HUF Full Form in Income Tax is Hindu Undivided Family. A Hindu Undivided Family (HUF) is a legal and tax entity formed by a group of members belonging to an undivided Hindu family. It’s important to note that for tax purposes, the term “Hindu” in HUF encompasses individuals from Buddhist, Jain, and Sikh religions as well. An HUF is an effective tool for tax planning and wealth management within a family structure.
Structure of an HUF
HUF comes from the ancestral property. Parents, children (females since 1956), and male-line descendants are coparceners. Karta is HUF family head. Karta is father or oldest son. Karta represents HUF in all legal and financial matters.
Taxing HUF
An HUF is independent from its members for income tax purposes. HUFs submit and pay income taxes. HUF income is taxed at Karta individual rates, therefore coparceners may distribute it.
Benefits of HUF
Income Distribution Tax Savings HUF pays coparceners (children). Contributing to coparceners’ reduced tax rates may help high-income households reduce their taxes.
Increased Investment Potential
HUFs may own property and securities. The coparceners may divide HUF money from these assets. This increases family wealth and investment.
Estate Planning Benefits
Coparcenary HUF assets inherit coparcenarily. This simplifies estate planning and may lower inheritance taxes. HUFs have different tax and asset management arrangements. HUF establishment, maintenance, and dissolution are complex but aid tax and estate planning.