HUF registration

HUF registration in Jharkhand- An HUF is a family which consists of all persons lineally descended from a common ancestor, and also the wives and daughters of the male descendants. It consists of the karta, who is typically the eldest person or head of the family, while other family members are coparceners. The karta manages the day-to-day affairs of the HUF. Children are coparceners of their father’s HUF. Once a daughter gets married, she becomes a member of her husband’s HUF, while continuing to be a coparcener of her father’s HUF. Even Jain, Buddhist and Sikh families can have HUFs.  A HUF is taxed separately from its members, therefore, deductions (such as under Section 80) or exemptions allowed under the tax laws can be claimed by it separately.

Basic criteria for an HUF

There are some essential conditions that must be fulfilled to qualify as an HUF. These are outlined below:

  • Only one member or co-parcener cannot form an HUF;
  • The joint family continues even in the hands of females after the death of the sole male member;
  • An HUF need not consist of two male members. One male member is enough. For example, a father and his unmarried daughters may form and HUF.

Members of HUF

All the members in your family, including your wife, children, their wives and their children. While the male members are called coparceners, the females are referred to as members. The senior-most male member is called the karta (manager), and a typical HUF consists of a karta, his sons, grandsons, and great-grandsons (all of whom are coparceners), and their wives and unmarried daughters (all of whom are members).

Properties which are generally accepted as joint family property:

  • Ancestral property;
  • Property allotted on partition;
  • Property acquired with the aid of joint family property;
  • Separate property of a co-parcener, blended with the family property. The provisions of S.64 (2) of the I.T. Act have superseded the principles of Hindu Law, in a case where the co-parcener impresses his property with the character of joint family property.

Systems which are used in a Joint Hindu Family Business

There are two systems which are used in joint Hindu family business :

  1. Dayabhaga System
  2. It prevails in West Bengal & Assam and allows both the male and female members of the family to be co-parceners.
  3. A son gets right in the ancestral property only after the death of his father.
  • Mitakashara System
  • There are four sub-schools – Benares, Mithila, Maharashtra or Bombay, and Dravida or Madras school.
  • The application of schools of  Mitakshara is region­wise.
  • Mostly, it prevails in most parts of India, except West Bengal.
  • It allows only the male members to be co-parceners in the business.

Advantages of a Joint Hindu Family Business

The Advantages of the joint Hindu family business are as follows:

Effective control: The card has complete control over business activities and makes decisions quickly. No one can interfere with the card’s decision, as each member is obliged to accept their decision. This avoids conflicts between members and leads to very quick decisions.
Continuation of business: –After the death of the card, the next oldest member replaces it. So the business will not be affected. Therefore, all business activities are carried out smoothly, continuously and without any threats.
Limited Liability of Members:- Since the total liability of members is limited to the sum of their share in the business. However, the card has unlimited liability for its full business activities. Therefore, in the event of termination of the deal, the personal assets of the card and its share are responsible.
Increased Loyalty and Collaboration: – All transactions are done jointly by family members. So this increases loyalty and cooperation between each other without a hitch.

Disadvantages of a Joint Hindu Family Business

The Disadvantages of the joint Hindu family business are as follows:

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Limited Resources:- All Hindu family joint business members depend completely on hereditary property due to their limited responsibilities.
Many commercial banks refuse to extend credit limits due to the company’s weak financial position. Therefore, this will result in limited business expansion and growth.
Karta’s unlimited responsibilities: – All major decisions regarding the conduct of various business activities are made by Karta. However, Karta has a weakness, namely that his responsibilities are not limited. Therefore, all business obligations are settled from the personal assets of the card.
Karta Domination: Cards make all decisions individually and manage the business. It also involves other members in the decision-making process. However, the card is not obligated to accept the member’s decision, which may cause conflicts between the card and other members. Therefore, due to conflict in decision making, there is a lack of cooperation between Karta and the other members.
Limited Management Skills: -Sometimes members suffer due to unfair decisions made by cards regarding their business operations. Due to lack of management skills, dishonest decisions are made. So the card cannot know or master all management functions. Currently, the joint Hindu family business is declining due to the decreasing number of joint Hindu families in the country.

FAQs

Qus:–Can I open HUF account?

HUF account can be opened in any bank. HUF account can only be opened by the Hindu and Hindu dissidents like Sikh, Jain and Buddhist. HUF can be divided only on agreement of every coparcener of the family. The family gets tax benefits on deposits under various sections.

Qus:–Does HUF have Aadhaar?

Aadhar cards are given to individual persons. They are not applicable to entities like companies, proprietorships, HUF s etc. Note that if needed, Karta’s Aadhar Number has to be attached with the HUF account. It is a part of the KYC process.

Qus:–How HUF can earn income?

The entity is allowed to earn from all legitimate ways except by way of salary. It can engage in business, investing in real estate and market linked investment options such as shares, earn income through rent etc. The HUF should file for ITR (Income Tax Returns) and income earned would be taxed as per the slabs.

Qus:–What is the income for HUF file?

Saving taxes through HUF is a valid and lawful thing to do. HUF is treated as a ‘person’ under section 2(31) of the Income-tax Act and is a separate entity for the purpose of assessment. Personal income of the members is not treated as income of an HUF. HUF has its own PAN and files a separate tax return.

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