How HUF can be used as Tax Planning Tool

huf tax planning

HUF (Hindu Undivided Family) is a legal entity that can be used as a tax planning tool in India. HUF is a separate entity, distinct from its members and can own property, enter into contracts, and pay taxes. In this blog post, we will discuss how HUF can be used as a tax planning tool and the benefits it offers.

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What is HUF?

HUF is a legal entity that is recognized under Hindu law and is composed of a Hindu male, his wife, and his unmarried children. The head of the family is known as the “Karta” and is responsible for managing the HUF’s property and finances. HUF is considered a separate entity for tax purposes and can own property, enter into contracts, and pay taxes.

Benefits of HUF

  1. Tax Savings: HUF is eligible for certain tax exemptions and deductions that are not available to individuals. For example, the income of an HUF is taxed at a lower rate than the income of an individual. This can result in significant tax savings for the family.

  2. Property Inheritance: Property inherited by an HUF is not considered as the individual property of its members. This means that the property can be passed on to future generations without the need for probate or the payment of inheritance taxes.

  3. Protection of Property: Property owned by an HUF is protected from creditors and cannot be attached or sold to satisfy debts of its individual members.

  4. Separate Bank Accounts: HUFs can open separate bank accounts and enter into contracts in their own name. This can make it easier to manage the HUF’s finances and property.

  5. Flexibility: An HUF can be dissolved at any time and its property can be distributed among its members as per the wishes of the Karta.

How to form an HUF

  1. The first step in forming an HUF is to identify the members of the family who will be part of the HUF. This includes the Hindu male, his wife, and his unmarried children.

  2. The next step is to create a deed of partition. This is a legal document that sets out the terms of the HUF, including the names of its members, the property that will be transferred to the HUF, and the rights and responsibilities of its members.

  3. Once the deed of partition is executed, the HUF can be registered with the income tax department. This is done by filing Form 60 or Form 61 and providing proof of the HUF’s existence, such as the deed of partition.

  4. After the registration, the HUF can open a bank account and start managing its property and finances.


HUF is a legal entity that can be used as a tax planning tool in India. It offers several benefits such as tax savings, protection of property, separate bank accounts and flexibility. Forming an HUF requires a legal document known as a deed of partition and registration with the income tax department. If you are a Hindu family and looking for ways to minimize your tax liability, then it is worth considering forming an HUF. However, It’s always a good idea to consult with a financial advisor or a tax professional before making any decisions about HUF formation or any tax-related matters.

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