Why Every Indian Needs A Huf Account

TITLE: Why Every Indian Needs a HUF Account (Hindu Undivided Family) CHANNEL: CA Niraj Dugar | Holistic Prime Wealth DATE: 2026-05-30

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We have discussed Hindu undivided family a few times on the channel and most people are confused about how to fund the HUF so that you can save some taxes within your family. Today we are going to discuss exactly those ways about funding the HUF and in the next video we are also going to talk about private family trusts which can be used for multiple purposes which we will discuss in that video. So if you want to understand that in detail as well, do not forget to subscribe to the channel and also hit the bell icon so that you can be reminded of that whenever the video releases. So folks, welcome to the channel. My name is Nero and I talk about personal finance and credit cards on YouTube. I manage more than 250 cr rupees for families like yours at holistic wealth where I am a partner when we help you with all aspects of your finances. pay taxes, insuranceances, credit cards, investments, estate planning, everything under one roof. If you’re interested, do reach out to us through the Google form in the description box below.

So before we start, you know, talking about uh the different ways to fund your HUF, right? Let us quickly go back and understand what are some of the important terms which are used in HUF and then obviously you can look at my previous videos also which I will you know link it in this video so that you can have a better understanding of other stuff as far as HF is concerned. There are three important terms that you should know about in HUF. Firstly the karta second members of the HUF and third is co-pareners of the HUF. So karta is basically the head of the HUF. Traditionally the eldest male member of the family would be the karta of the HF. But after the 2005 amendment to the Hindu succession act, a female co-parener can also become a kartha. And karta is a person who manages all the affairs of the HUFB, the bank account, investments, property decisions. You know, think of the karta as the CEO of the HUF. But one important distinction to understand is that Karta does not own the HUF’s assets. Karta is only the manager on behalf of the member. So for example, I have my own HUF which I set up last year and it’s called Niraj Dar Huf and I am the Karta of the HUF and we’ll talk about who are the co-pareners of my HUF and who are the members of my HUF as well.

Co-pareners are basically people who have a right in the HUF’s property. So this is a birthright that they get you know for the property held within the HUF. So under the Hindu succession act you know after the 2005 amendment co-parsener will include the karta. Yes. So I am also the karta and the co-parsener of my HUF plus three generations below. So my sons, my daughters, my grandsons, granddaughters all will have the co-parener rights and will all be called co-parseners of my HUF. Co-parenals have two key rights that other members do not have. Right. Number one is that they have a right to demand partition of the assets of the HUF. So any co-person at any point in time can demand the HUF assets to be divided. This is a legal right that cannot be denied. And the second point is that they get a share in the HF’s property by birth. So they don’t really need to earn their stake. So my son is auto automatically become a co-parener of my HUF and my future kids and you know my grandkids all of them will be co-parenters of my HUF. Now one important thing to note is that my wife is not a co-parener of the HUF which is a very important distinction to understand.

And thirdly members of the HF are part of the HF but they are not co-parenters. This includes the wives of the male co-pareners of the HF. They become members of the HUF by marriage not by birth. And in some cases other relatives living as a part of joint family are also the members of the HUF. Now members benefit from HUF’s income. They can receive payouts, gifts and support from the HUF but they cannot demand partition and they not have any birthright share in the property of the HF.

So before we talk about the funding methods, you need to understand one provision that ruins most HF tax planning. So under section 64 of the income tax act if a member of the HF transfers their property without any consideration at fair value then any income arising from that property is taxed in the hands of the member and not in the hands of HUF.

So now let us come to the methods of funding your HUF. So the first method is through ancestral property and inheritance. So if you have inherited any property through the family line, it could be land, buildings, jewelry, family business assets, they can automatically be transferred to the HUF and you can fund your HUF. Any income from these assets, be it rental income, capital gains, business income will be the income of the HUF going forward.

The second method is you know receiving assets by will. So any person be it a family member or not can leave money or property to the HUF by a will. So on their death the because of the will the property of that person will move to the HUF. So this can be you know done easily especially in case of real estate. If somebody wants to move their ancestral family homes or their parents’ homes to their HF they can do it by just getting a will written in the name of the HUF.

The third method is the beautiful method that you need to listen to carefully because this can be used and you know you can also create a separate stream of income in the HUF. A member of the HUF can always lend money to the HUF in the form of a loan. You have to charge a nominal interest rate of at least four or 5% depending on whatever is the RBI’s rate and the income that is earned by the HF will be the income of the HUF. Whatever loan interest rate is there has to be paid by the HUF to the member of the HF. The loan must be properly documented. It must be a written agreement and it should talk about the stated loan amount. There should be a repayment schedule as well. Even if the loan is a long-term loan, ideally an interest rate is also important. You can do a zero interest rate loan also, but it’s not recommended in my view. So, if you are someone who is in a higher tax bracket and you know does wants to create a regular stream of income, then you can consider this method of funding the HUF.

The next method is gifts received from members of the HUF to HUF. So here the problem is that if a member of the HUF gifts any money to the HUF then the clubbing rule will will apply as we discussed in the beginning of the video. So whatever income HUF earns on the assets transferred as a gift by the member the income will be clubbed in the hands of the member of that HUF. However, any income earned on the income which the principal amount earns will not be taxed in the hands of the person who is gifting the money to the HU. Let us take an example and understand this. So for example, you are a member of your HUF and you gifted 10 lakh rupees to your HUF. Okay. So this 10 lakh rupees suppose it’s earning 70,000 per year. The 70,000 rupees is going to be clubbed in your hands. But the income generated by this 70,000 rupees in the next year which could be say around 5,000 rupees will not be clubbed in your hands and that will be considered as an income of the HUF only.

The next way to fund an HUF is that the HUF can start a business. Now this business can be a business without needing in capital or with capital. The capital requirements can come in the form of a loan from the members of the HF. So now one important distinction to understand is that the HF can run a business but it cannot provide professional services which is extremely important for you to understand. So professional services are not a part of HF simply because professional services require a particular skill right. The skill can be of a doctor, of a CA, of a lawyer, right? And these skills are only available with an individual. So if the individual possesses that skill and not the family, the income cannot be of the HF. The income is going to be of that individual only. So what the HF can exactly do? They can run a trading business buying and selling goods. They can operate a shop. They can rent out property, manage investments, etc. Right? They can even run a manufacturing unit. So you have to have, you know, a clear distinction whether you are providing a professional service or running a business from your H.

The next way to fund your HUF is obviously by receiving gifts from non-member relatives of your HUF. So you have to understand one thing that there is a limit of 50,000 rupees beyond which gifts will become taxable. So definitely be wary of this and also be wary of the basic exemption limit. So under the new tax regime if you say you don’t have any other income in the HFS, you can take up to three lakh rupees of gift in the HUF and fund that HUF every year without paying any taxes.

Another way to fund the HUF is that if a karta earns remuneration from a firm partnership firm where the HUF itself is a partner. So if the karta became a partner because HUF is invested in the firm the remuneration will be of the HUF. However, it is important to know that if the income if the karta became a partner due to his personal skills and qualifications then the remuneration will be of his only. So please have that distinction for sure.

Next way to fund it is that if a HUF owns a property, then they can rent out the property and continue to earn rental income on that property as well. And lastly, any investment income accumulated as surplus from the HUF investments are also a way of funding the HUF.

So, are you a salaried member or someone in the high tax brackets and looking to create an HUF to save some taxes? Let me know which way you are thinking about funding your HUF. In my view, loan is only uh one of the easiest methods to fund it. But you will need to do a lot of accounting and ensure that interest payments are done. Ensure that agreement is in place. Ensure that the repayments are also going on time as far as your HF loan is concerned. So be wary about that. Let me know if you have any questions as well. We’ll happy to discuss those in the future videos. Thank you for watching. Stay tuned for more such videos and do not forget to like, share and subscribe.