How to Form an HUF in 5 Easy Steps?
By Anupama Deshpande | May 25, 2018

As per the Hindu Law, the HUF is defined as a family consisting of males lineally descended from a common ancestor, their wives and unmarried daughters.

As the Income Tax Act in India recognises the HUF, as a separate independent legal entity, it enjoys all the tax advantages.

Formation of HUF offers you savings on tax by diverting the family income as the HUF income and thereby reduces your tax outgo. This is the reason why it is beneficial to form an HUF.

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Give below is the step by step process of formation of an HUF:

Step 1: Establish the Corpus & Members for HUF

The family can use capital assets such as ancestral property, gifts received from relatives and friends, or received by the family through a will to form the corpus of the HUF.. If you give a personal asset to the HUF, the income will be clubbed with your own. Gifts of over 50,000 a year received by HUF will be taxable. The best way is for the HUF to receive assets as part of a will. As minimum number of members to form an HUF should be two, hence even husband with his wife can create an HUF.

Step 2: Give a Name to the HUF

The members of the HUF are free to choose any suitable name for the HUF. It is to be noted that the name should not violate the laws.

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Step 3: Prepare an HUF Deed

The formation of an HUF is required to be declared on a stamp paper. This document is called as HUF Deed. It includes the name of Karta, Co-Parceners, Members, Address and Source of funds to establish the corpus for the HUF.

Step 4: Apply for PAN Card for HUF

After preparation of HUF Deed, it is required to apply for the PAN Card for the HUF. Karta of the HUF applies for the PAN Card for the HUF. It is mandatory for HUF to have its own PAN Card as all the financial transactions carried out by the HUF will require a Permanent Account Number (PAN).

Step 5: Opening of a Bank Account in the name of the HUF

After getting the PAN Card, the karta of the HUF has to open a bank account in the name of the HUF. After opening of bank account in the name of the HUF, all the monies related to the business of the HUF can be transacted with the help of this account such as investments can be made in the name of the HUF, income can be deposited in the bank which is in the name of the HUF, etc.

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