HUF: Benefits and Hurdles:

The Hindu Undivided Family (HUF) is a recognized legal entity under the Income-tax Act, 1961. It is treated as a separate ‘person’ for tax purposes, distinct from its individual members.

Benefits of HUF:

HUF offers several tax-saving benefits and investment opportunities:

 1. Tax Exemption: An HUF enjoys tax exemption limits similar to individuals. A member of an HUF can avail complete tax exemption on any amount of income received from business done by the HUF, as the same is taxable in the hands of the HUF. According to the Income Tax Act, tax rebates and deductions can be availed under sections 80C, 80D, 80DD, and 80TTA for the HUF account.

 2. Tax-Free Gifts: Gifts collected up to a worth of Rs 50,000 will be tax-free. For instance, a father who owns an HUF account can gift a property or money of higher worth to a son who owns a smaller HUF account; however, he should specify that the gift is for the son’s HUF and not to him as an individual. This allows tax benefits under section 64(2) and 56(2).

 3. Investment Opportunities: The HUF corpus can be used for investment in tax-free money instruments and Equity Linked Savings Scheme (ELSS) to earn tax benefits under Section 80C of the Income Tax Act. Although an HUF cannot hold a Public Provident Fund (PPF) account in its name, it can avail tax deductions for the amount deposited by the HUF in PPF accounts of its members on their behalf.

Hurdles with HUF Dissolution:

While HUF offers significant tax planning benefits, there are challenges in its dissolution:

 1. Transfer of Property: Since all members of the HUF have the right in the properties and assets of the HUF, joint assets cannot be sold without the consent of all its members. As a member owns his/her right in the HUF automatically by birth, he/she cannot bequeath his/her share to anyone.

 2. No Universal Recognition: One of the challenges with HUF is that it is not recognized universally in any other country, except India. This poses difficulties in terms of income assessment for HUF members who move abroad or obtain foreign citizenship.

 3. HUF Partition and Dissolution: An HUF may need to be dissolved in case of the death of members or in the event of a partition between members of the HUF. Once an HUF is closed and dissolved, its assets and properties need to be distributed among all its members, which can be a complex process.