By: CA. Ankur Kumar Agarwal

1. TAX PLANNING THROUGH HUF By: CA. Ankur Kumar Agarwal

2. HOW ONE CAN CREATE HUF(HINDU UNDIVIDED FAMILY) • Though every body is interested in this question and this question has been asked by many and generally not have any answer in text book also, why it so ? • The answer is very interesting that the above question is wrong the correct question is • "How we can create capital for HUF ?”

3. The Hindu Undivided Family has its roots in the ancient Hindu law like the Manu Smriti, compiled by a male chauvinist Hindu "Scholar" called Manu, who lived around 200 BC; the Yajnavalikya Smriti compiled by Yajnavalikya and Narada in 100 and 200AD (it merely embellished what had already been laid down by Manu); and Mitakshara codified by a guy called Vijneshwara somewhere around the year 1100AD. Mulla, the foremost authority on Hindu law, has described the Mitakshara as "the quintessence of the Smriti law, its precepts and injunctions". Later in the 12th century, there came along another variation of the Hindu law called the Dayabhaga written by one Jimutavahana. The Dayabhaga challenged and deviated from the Mitakshara law in some ways, particularly in relation to succession and inheritance.

5. Under the Dayabhaga system, the father is the sole owner and the exclusive possessor of the joint family property. No member can enforce the partition of the HUF so long as the father lives. But the Mitakshara law stipulates that the property vests in the HUF itself and not in any individual member of the family and therefore can be partitioned within the lifetime of the father.Hindu Undivided Family signifies that the undivided family should be of those to whom Hindu Law Applies - CWT V. Smt. Champa Kumari Singhi (1972) 83 ITR 720 (SC),  Hindu Law applies to Jains, Indian Buddhists and Sikhs also. Muslims and Christians cannot form HUF, as this law doesn’t apply to them.

6. "The million-dollar question indeed is: How to blow funds into the HUF and turn it into a balloon that floats?”*A member of the HUF throwing his money into the common pool or the family hotchpots, is out of the question, thanks to Section 64(2) which would tax the income earned by the HUF on that money in the individual member's hands only.But the clubbing provisions can be bypassed if the HUF invests the money in instruments yielding tax-free income. The tax-free income can then be reinvested to earn even taxable income--income on income is out of the clubbing provisions.

7. A father may make a gift of money to his son's newly created HUF, clearly specifying in the Gift Deed that the gift is to his son's smaller HUF and not to the son himself. This will keep both Section 64(2) and Section 56(2) at bay. After the HUF has a nucleus of its own and gets going, care has to be taken to keep the HUF's affairs completely distinct from the individual members' affairs. Where the members of the HUF carry on their individual businesses, as they normally do, the distinction between what constitutes the individual's income and what is HUF's income may get blurred • Some other people, who aren't members of the HUF but are relatives in terms of Section 56(2), can also be found out. Strangers can make gifts but only up to Rs.50000 (Section 56).

8. Now every body comfortable with the question because creating a capital by transfer, gift and all like stuff so to have capital in HUF account we should take following steps: • There must be a donor who will give gift to the HUF. • We should have opened a bank account first (not must) but it is advisable so that we can have transaction by cheques. • Apply for permanent account number (pan). • Formation of capital of huf, Transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act, Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.

9. On 9th September 2005, the Hindu Succession Act, 1956 was amended to provide that: • A daughter too could be a coparcener i.e. joint heir, like her brother to the joint family's assets and she too could enforce the partition of the family property to claim her individual share. • She continues to be the coparcener in her father's HUF even after she gets married and forms another HUF with her husband. So gender bias has largely been taken out of the HUF laws.

10. The most frequently asked question about HUF is: How does it come into being? To form an HUF, all you have to do is Get Married. The HUF gets created as soon as you complete the seven (or four, whatever) circles round the holy fire and become Husband and Wife.There have to be a minimum of two people to constitute a family. The husband and wife together make up a family. They don't have to wait till they have a baby to constitute their HUF.Someone asked, "Can an unmarried man create an HUF?" No, he cannot, if you mean an HUF of which he seeks to be the Karta himself. He can very well be the member of the HUF of his father or grandfather, but to create his own HUF he has to wait till he ties the nuptials. Come to think of it, "Creation of an HUF" is an oxymoron—-a contradiction in terms. Only orphan-and-unmarried Hindus don’t belong to an HUF. Every Hindu becomes a member of an HUF the moment she ejects out of her mother's womb, mode of delivery--C- section or Normal--notwithstanding.

11. A person may file three types of returns: • In his individual capacity; • In the capacity of karta of the HUF which had come into existence after partition of his father’s HUF. • In the capacity of karta of his own HUF.

12. DATE OF CREATION OF HUF: • If the assessee’s father has no HUF, then the date of marriage. • If the assessee’s father has a HUF, then the date of creation of HUF will the date of marriage or the date of partition whichever is later.