Hindu Undivided Family (HUF) Registration
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Overview
A Hindu Undivided Family (HUF) is a Legal Entity created for tax and estate planning purposes under the Hindu Law in India. It consists of individuals descended from a common ancestor, including their wives and unmarried daughters. A HUF is governed by Hindu Law, and its income and assets are treated separately from the individual members for tax purposes. A HUF is typically formed by Hindu, Jain, Sikh, or Buddhist families, and it can be an effective way to manage joint family wealth and minimize tax liabilities.
Key Features
Separate Legal Entity
A HUF is considered a separate legal entity, distinct from its members, for the purpose of taxation and ownership of assets.
Common Family Pool
The property or assets owned by the HUF are considered common family property, managed by the head (Karta) for the benefit of all members.
Karta
The eldest male member of the family is typically the Karta, who manages the HUF’s affairs. In recent years, women have also been allowed to become the Karta in some cases.
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Perpetual Succession
A HUF continues to exist even after the death of the Karta. The next eligible male or female member becomes the Karta.
Tax Benefits
HUFs enjoy tax exemptions and benefits separate from individual members. This allows for income splitting, reducing the overall tax burden on the family.
Why Choose a HUF?
Tax Benefits
A HUF can avail of a separate PAN and file income tax returns separately from its individual members, effectively lowering the overall tax burden on the family.
Wealth Management
The proprietor has full control over all aspects of the business, including decision-making, operations, and finances. This autonomy allows for quick decisions and personalized management.
Perpetual Succession
HUFs ensure continuity in the management of joint family assets across generations.
Legal Recognition
HUFs are legally recognized entities that offer a formalized structure for managing family assets and distributing income.
Basic Need
Hindu, Jain, Sikh, or Buddhist Family
The family should belong to one of these religious groups to form a HUF.
Formation of HUF
A HUF is automatically created upon marriage for Hindus, but families can formalize it by pooling ancestral property or family assets. To formalize the HUF, members must agree to treat certain assets as family property.
Appointing the Karta
The eldest male member is traditionally the Karta of the HUF. However, post the Hindu Succession (Amendment) Act, 2005, a woman can also become the Karta.
Obtain a PAN for the HUF
Apply for a PAN card in the name of the HUF. The Karta will be the authorized signatory for the HUF, and the PAN will be used for filing income tax returns.
Open a Bank Account
Open a current or savings bank account in the name of the HUF to handle financial transactions related to the HUF’s income and assets. The Karta will operate this account.
File Income Tax Returns
Once the HUF is created, file separate income tax returns for the HUF, allowing the family to claim tax exemptions on income earned by the HUF.
Manage Assets and Properties
The HUF can own property, invest in financial instruments, and earn income from business activities or investments. The Karta is responsible for managing these assets on behalf of the family.
Optional Steps
Wealth and Estate Planning
Use the HUF as a tool for wealth management and estate planning, ensuring smooth transition of assets across generations.
Investment in Tax-Saving Instruments
The HUF can invest in various tax-saving instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), and life insurance to further reduce the tax burden.