Guide on Opening a Bank Account for HUF

As everyone knows, Hindu Undivided Families are treated as separate legal entities under the Income Tax Act. HUF cannot use its members' bank accounts to do business under its name (Karta and co-parceners). An official rubber stamp bearing Karta's signature is necessary because HUF is an artificial entity and cannot sign on its behalf. This blog focuses on how to open HUF account.

Understanding HUF

According to Hindu law, the term "Hindu Undivided Family" (HUF) refers to all living people who have a common ancestor, including their wives and daughters.

A provision of the Income-tax Act of 1961 states that the Hindu Undivided Family is regarded as a "person" for the Act's assessment purposes. HUF has its own Permanent Account Number (PAN) and is a separate tax-filing entity. The "karta," who is frequently the eldest or leader of the family, and the other family members make up a HUF.

The "Karta" oversees the everyday operations of the HUF. Children are HUF coparceners, belonging to their father. When a daughter marries, she joins her husband's HUF and stays a coparcener in her father's HUF. HUFs can be formed by Sikh and Jain families, even if they are not subject to Hindu law.

Opening a bank account for a HUF

• HUF can create an account with a private, nationalized, or public bank.
• The kind of bank account that a HUF can open and use is not restricted. HUF can open a current account or a savings account.
• HUF can also open public provident fund accounts, Demat accounts, and other accounts.
• Once the HUF has the PAN Card, they can open a bank account.

 The following documents are necessary to create a bank account for a HUF:

1. The name of the HUF.
2. A passport-sized image of the Karta.
3. Evidence of the Karta's identity and address.
4. The HUF's PAN card and PAN number
5. The membership and coparcener list.
6. Any additional information requested by the bank at the time of account establishment.

Only those approved by the Karta may handle the bank account, which will be registered in the names of both HUF and the Karta. An HUF bank account is a current account, hence the bank will charge you more fees.

Benefits of creating a HUF

A HUF is taxed separately from its members and co-owners because it is a distinct legal entity. As a result, the HUF can also claim deductions and exemptions under Section 80, lowering the individual tax burden. The same is true for reimbursements for loans, rent, and other expenses. Because of this, chartered accountants frequently encourage all married Hindu couples to form a HUF. HUFs often pay 30% less tax than other taxpayers. HUFs can be established by Jain, Buddhist, and Sikh families as well as Hindus. Hindu Undivided Families (HUFs) were first recognized as a separate entity for taxation in 1917. As a result, many families, have devised ways to avoid paying taxes over time.

Utilization of various tax advantages offered by HUF:

1. Income tax advantages: A HUF is a separate legal entity. In this example, each family member has a PAN card, while the HUF has its own. A HUF can run its own business and make revenue. It can also invest in mutual funds and stocks. As a separate entity, the HUF is eligible for a basic tax exemption of Rs. 2.5 lakh.
2. House ownership: If you own more than one self-occupied property, only one can be recognized as such under current income tax legislation. The fictional rent for the remaining properties is taxable and "considered to be leased out." A HUF, on the other hand, is tax-free if they own their own home. Furthermore, it may use a house loan to purchase a residential property and claim tax benefits under Section 80C of the Income Tax Act.
3. Life Insurance: Individuals can claim tax breaks on certain payments they make during the year under the terms of the Income Tax Act. A HUF qualifies for similar benefits.
4. Investments: A HUF is enabled by the Section to participate in tax-saving Fixed Deposits and Equity-Linked Savings Schemes (ELSS) and obtain tax benefits of up to Rs 1.5 lakh. Furthermore, although a HUF cannot establish a PPF (Public Provident Fund) in its own name, it is entitled to deduct taxes on funds sent to each member's PPF account on behalf of the HUF.
5. Medical Insurance: A section permits you to deduct Rs 25,000 from your family's health insurance premiums each year. Due to the increase in health insurance premiums, this amount may not be sufficient to offer adequate health insurance to your family. HUF can assist you in this circumstance. Health insurance premiums paid for HUF family members this year are eligible for an additional tax credit of up to Rs 25,000. The maximum amount increases to Rs. 50,000 for senior citizens.

Regular tax payments are essential for being a law-abiding citizen. However, this does not exclude you from taking advantage of the government's different tax incentives. You can maximize your long-term tax benefits by forming a HUF.