Definition
Hindu Undivided Family (HUF)
An HUF is a separate tax entity formed by a Hindu family that can hold assets and earn income taxed independently of its members.
A Hindu Undivided Family (HUF) is recognised under tax law as a distinct taxpayer with its own PAN, run by a karta (typically the eldest member) on behalf of the family. It can own property, run a business, make investments, and is taxed at the same slab rates as an individual, with its own basic exemption.
Because the HUF is a separate entity, families can sometimes achieve tax efficiency by allocating certain income or assets to the HUF, which gets its own exemptions and deductions like 80C. Ancestral property and gifts to the HUF are common sources of its capital.
HUFs come with complexities — partition rules, member rights, and clubbing provisions on personal funds transferred in — so they should be set up and used with proper advice.
Related terms
- Section 80CSection 80C allows a deduction from taxable income for specified investments and expenses, such as EPF, PPF, ELSS, life insurance premiums and home-loan principal, under the old regime.
- Gift TaxGifts above a threshold from non-relatives are taxable in the hands of the recipient, while gifts from specified relatives are exempt.
- Clubbing of IncomeClubbing rules add certain income of your spouse or minor child to your own income to prevent tax avoidance through family transfers.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.