HUF registration in Bihar- Hindu Undivided Family (HUF) is a legal entity recognized under the Hindu Law. It is formed by a group of individuals who are lineally descended from a common ancestor, including their wives and unmarried daughters. HUF is a popular form of business entity in India, and it provides several advantages to its members, such as lower tax liability, asset protection, and ease of doing business.
Meaning and Definition:
Hindu Undivided Family (HUF) is a joint family consisting of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. The concept of HUF is based on the Hindu Law, which recognizes the importance of joint family system in Hindu society.
HUF is governed by the Hindu Law, which is a personal law applicable to Hindus, Buddhists, Sikhs, and Jains in India. The legal provisions governing HUF are mentioned under the Hindu Succession Act, 1956, and Income Tax Act, 1961.
Rules and Process for HUF Registration in Bihar:
To register an HUF in Bihar, the following rules and process should be followed:
Obtain a PAN Card: The first step is to obtain a Permanent Account Number (PAN) card for the HUF. A PAN card is mandatory for opening a bank account, filing tax returns, and conducting business activities.
Prepare a Deed of HUF: The next step is to prepare a Deed of HUF, which should be signed by all the members of the HUF. The deed should contain the name of the HUF, details of the common ancestor, names of the members, their relationship with the common ancestor, and the percentage of share of each member in the HUF.
Get the Deed Notarized: The Deed of HUF should be notarized by a notary public or an advocate to make it a legally valid document.
Register the Deed: The final step is to register the Deed of HUF with the Registrar of Companies. The registration process requires submission of the notarized deed, along with the application for registration, PAN card, and identity proofs of all the members.
Types of HUF:
There are two types of HUF, which are as follows:
Dayabhaga HUF: This type of HUF is prevalent in Bengal and Assam, and it follows the Dayabhaga School of Hindu Law. Under this type of HUF, the property is divided among the members during the lifetime of the common ancestor, and each member has a definite share in the property.
Mitakshara HUF: This type of HUF is prevalent in the rest of India, and it follows the Mitakshara School of Hindu Law. Under this type of HUF, the property remains undivided, and the members have a right to share in the property, which is determined at the time of partition.
Eligibility for HUF Registration:
To be eligible for HUF registration in Bihar, the following criteria must be met:
The HUF should consist of at least two members who are lineally descended from a common ancestor.
The members should be Hindus, Buddhists, Sikhs, or Jains.
The HUF should have a PAN card.
Advantages of HUF:
The following are the advantages of HUF:
Lower Tax Liability: HUF provides several tax benefits to its members, such as a separate tax exemption limit, deduction on interest paid on home loans, and deduction on donations made to charitable institutions.
Asset Protection: The property owned by an HUF is protected from the personal liabilities of the members, which makes it an effective tool
Under section 2(31) of the Income-tax Act, 1961, an HUF is considered a “person” and, therefore, is treated as a separate entity for the purpose of tax assessment. Often families that own ancestral properties and businesses obtain a separate Permanent Account Number (PAN) in the name of the HUF. This is done so that the incomes earned from the assets and businesses owned by the HUF are assessed separately, which also brings down the family’s tax liability. An HUF is taxed on the same slab rates that are applicable to an individual income tax assessee.
Rights of the members of HUF:
The difference between a coparcener and a member is that a coparcener can demand partition of an HUF. This is by way of distribution of HUF property among the coparceners. While each coparcener would then be entitled to a share of the property, the members would be entitled to receive maintenance from the HUF. The karta generally manages the family property, which is regarded as the joint property of all the coparceners.
Required documents for HUF:-
- PAN Card
- ID Proof (Driving License/Passport/Voter ID)
- Electricity Bill or any other utility bill for the address proof
What income is taxable as HUF income:-
Any income that arises on the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilisation of HUF assets (like rent earned on letting out HUF property) would be regarded as HUF income. It is important that the income be earned using HUF funds or property only. If the income arises on account of the personal exertions of the karta or any other member and not on investment of HUF funds, such income would generally be regarded as the individual income of the karta or the member.
If an HUF contributes funds to the capital of a partnership firm, profit and interest received (from the firm) by a partner who represents the HUF is regarded as HUF income. This is because the income in the partner’s hands arises on investment of the HUF’s funds. However, if the karta is also paid a salary by the firm for efforts put in by him, such funds would be regarded as the karta’s individual income. Speculative profit can be regarded as the income of an HUF, particularly in cases where the HUF has paid margin money or deposits for such transactions.
Key points in creation of HUF and Format of Deed for creation of HUF:
- 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.
- You can not transfer your own assets/money into HUF.
- If you have ancestral property and earning some income from this property, then it is better to transfer this asset to HUF and save tax up to exemption limit applicable to individual.
- You can transfer the money received on sale of ancestral property /assets into your HUF.
- The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF.
- Existence of property or multiple members is not a pre-requisite to create HUF. A family which does not own any property may still have the character of Hindu joint family. This jointness is understood in terms of faith and food. This is because as a Hindu is born as a member of the joint family.
- Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.
- The HUF is taxable as separate person under income tax hence one can save tax from basic exemption . HUF will also gain from the tax slab structure of computing income tax.
Frequently Asked Questions:-
Ques:–When can a HUF be formed?
Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family.
Ques:–Can a salaried person create HUF?
Yes. Salaried Individuals can open a HUF account as soon as he is married. However to enjoy the Tax Deductions he should have a child. By definition, the karta of an HUF would compulsorily need to be a coparcener. In the case of Mrs Sujata Sharma vs Shri Manu Gupta & Ors [CS (OS) 2011/2006], the Delhi high court held that an eldest female member of a family, being the coparcener in an HUF, may become the karta of an HUF.
Ques:–What happens if Karta of HUF dies?
The Karta is traditionally the senior most male coparcener of the HUF. When Karta of the HUF dies, the next senior male member takes over as Karta. As per Hindu Succession (Amendment) Act, 2005 the daughters of a family who are governed by Mitakshara Law, also become co-parceners in the HUF property.
Disadvantages of HUF:
The following are the disadvantages of HUF:
Lack of Flexibility: HUF is a rigid structure, and it may not be suitable for those who prefer flexibility in managing their assets and finances.
Complicated Succession: In case of the death of the common ancestor, the succession of the property can become complicated, and it may require legal intervention to divide the property among the members.
Limited Membership: HUF is limited to lineal descendants of a common ancestor, which may not be suitable for those who want to include other family members in the business or financial affairs.
Documents Required for HUF Registration:
The following documents are required for HUF registration in Bihar:
Deed of HUF: The deed should contain the name of the HUF, details of the common ancestor, names of the members, their relationship with the common ancestor, and the percentage of share of each member in the HUF.
PAN Card: A PAN card is mandatory for opening a bank account, filing tax returns, and conducting business activities.
Identity Proof: Identity proof of all the members, such as Aadhaar card, voter ID card, passport, etc., should be submitted along with the application for registration.
Address Proof: Address proof of all the members, such as electricity bill, telephone bill, bank statement, etc., should be submitted along with the application for registration.
HUF is a popular form of business entity in India, and it provides several advantages to its members. To register an HUF in Bihar, the members should prepare a Deed of HUF, get it notarized, and register it with the Registrar of Companies. HUF is governed by the Hindu Law, which recognizes the importance of joint family system in Hindu society. However, HUF also has some disadvantages, such as lack of flexibility and complicated succession.