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Taxation & HUF
HUF or, Hindu Undivided Family (HUF) is a very popular concept in India for many reasons. One of the main reasons is the opportunity for tax savings. If HUF is considered only from the income tax lens, it is considered a separate entity and has its own PAN number. A Hindu Undivided Family (HUF) is a unique legal entity formed under Hindu law, comprising the direct descendants of a common ancestor.
The income of an HUF generally includes income from HUF assets, investments made from HUF funds, or a family business run by the HUF, while the personal salaries of members are generally taxed at their own discretion.
If a family has a common ancestor, forming a joint family unit recognized under Hindu law, it can function as an HUF for tax purposes. There must be a Kartha, the head of the HUF, who represents the HUF in financial and tax matters.
The HUF must consist of family members who form the unit, usually connected by lineal descent. The HUF must have or receive HUF assets or funds that generate HUF income, e.g., ancestral property or statutory contributions.