HUF in India: How It Works & Tax Benefits Explained (2025)

In India, tax-saving is not just about investments - it's also about smart structures. One such legal and family-based structure is the Hindu Undivided Family (HUF). You may have heard this term from your CA, seen it on your income tax portal, or come across it in financial articles.

But what exactly is an HUF? How does it work? Who can create one? Can it actually help you save tax?

Let’s break it down in simple terms.

Watch: HUF Explained by Experts

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In this in-depth webinar, Finnovate's Founder Nehal Mota and Chartered Accountant Jayant Furia break down:

• What is an HUF?
• Who can form one?
• What are the legal and financial benefits?
• Real use cases for salaried & business families

What is HUF?

HUF stands for Hindu Undivided Family. It is a legal entity recognized under Indian law that consists of all persons lineally descended from a common ancestor - including their wives and unmarried daughters.

In simple words, it's a family unit that can act like a "person" in the eyes of the Income Tax Department.

Who Can Create an HUF?

To form an HUF, you must belong to one of the following eligible categories:

• Hindu, Jain, Sikh, or Buddhist family in India
• Married couple or a joint family unit

Note: HUF cannot be formed by Muslims, Christians, Parsis, or by individuals on their own.

Can NRIs Create an HUF?

Yes, Non-Resident Indians (NRIs) who belong to eligible religions can maintain an HUF in India, particularly to manage ancestral property or Indian-sourced income. However, this must be done with careful legal and tax compliance under Indian law.

Who Are the Members of an HUF?

There are two terms to know:

1. Coparceners (Have the right to demand partition and share in property)

• Includes male and female children of the family
• Also includes the Karta (head of the HUF)

2. Members

• Includes spouses and other relatives
• They do not have a right to demand partition

Karta: The senior-most male/female coparcener who manages the HUF.

How Does HUF Work in Real Life?

Let’s say Mr. Sharma owns a business. He creates an HUF and assigns rental income from ancestral property to it. The HUF files its own income tax return and gets the benefit of separate tax exemption slabs.

At the same time, Mr. Sharma continues filing his own personal income tax return.

Result? The family saves more taxes because income is split between two entities.

Tax Benefits of an HUF

Once set up, your HUF is treated like a separate person under the tax law.

How to Create an HUF

1. Prepare a formal HUF Deed in a stamp paper

• Include names of coparceners and declaration of formation

2. Apply for separate a PAN card in the name of the HUF via NSDL or UTIITSL Website

3. Open a separate bank account in the name of HUF

4. Assign assets or income

• This could include rental income, gifts from relatives, or business profits

Note: You cannot transfer salary income to an HUF.

Can Women Be a Part of HUF?

Yes!

• Daughters (married or unmarried) are coparceners and have equal rights
• Wives are members of the HUF (though not coparceners)
• In certain cases, even women can become Karta (e.g. after death of husband)

This makes HUF a more inclusive tool in modern financial planning.

Real-Life Use Cases

• Business families split business income to reduce overall tax
• Land-owning families assign agricultural or rental income to HUF
• Professionals and salaried individuals use it to invest in assets in a separate name

Documents Required to Create an HUF

• HUF Deed (on stamp paper)
• PAN card of Karta
• ID Proof (Aadhaar card, passport, driving license, or voter ID) of Karta
• Address proof of Karta
• Passport-size photographs of Karta
• Signatures of Karta, Co-parceners, and other HUF members
• HUF PAN Card (if applicable)
• Bank account details of the HUF
• Affidavit stating the formation of HUF

Glossary of HUF Terms

Key Takeaways

• HUF is a smart, legal way to create a separate income stream and save tax.
• Anyone from a Hindu, Sikh, Jain, or Buddhist family can form an HUF.
• It needs a formal setup with a PAN, deed, and bank account.
• Works best when there’s ancestral property, family business, or investment income.
• HUF allows families to plan finances across generations.

Finnovate’s Perspective

At Finnovate, we believe structures like HUF can help Indian families build long-term wealth while staying compliant with the law. Understanding how HUF works is not just about saving tax - it's about learning how to manage your money as a family unit.

We don’t recommend products, but we do help you ask the right questions.

Want to know how an HUF fits into your family’s finances?

Frequently Asked Questions (FAQs)

Disclaimer: This content is for educational purposes only. Finnovate does not recommend any specific stocks, funds, or financial instruments.