Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The formation steps
An HUF comes into existence automatically on marriage in a Hindu family, but to use it for tax you formalise it: execute an HUF deed/declaration naming the karta and members (coparceners), apply for a separate PAN in the HUF’s name, and open a bank account for it. The HUF can then transact in its own name.
Funding it correctly
The crucial part is the source of funds. An HUF is properly funded by ancestral property, or by gifts and inheritances received for the family. You cannot simply route your own salary or professional income into the HUF to save tax — that income remains yours (clubbing provisions apply). Gifts from members can also trigger clubbing in some cases. Get the funding route right, or the saving fails.
A worked example
Example: a family creates an HUF, gets its PAN, and the grandfather gifts an ancestral plot’s rental income stream into it — that rent is then taxed in the HUF. By contrast, a doctor cannot pay his consulting fees into the HUF to escape his own tax. Used properly, the HUF is a legitimate planning tool; misused, it’s struck down. Our team can set up the HUF and advise on funding.