Juristax Experts

Meaning of Joint Hindu Family Business

The Joint Hindu Family Business is a distinct form of organisation peculiar to India. Joint Hindu Family Firm is created by the operation of law. It does not have any separate and distinct legal entity from that of its members. The laws that govern HUFs are not codified and are read along with the Hindu Succession Act and the Income- tax Act.

The business of Joint Hindu Family is controlled under the Hindu Law instead of Partnership Act. The membership in this form of business organisation can be acquired only by birth or by marriage to a male person who is already a member of Joint Hindu Family.

“When two or more families agree to live and work together, throw their resources and labour with joint stock and share profits and the losses together, then this family is known as composite family.”

There are two schools of Hindu Law-one is Dayabhaga which is prevalent in Bengal and Assam and the other is Mitakshara prevalent in the rest of the-country. According to Mitakshara law, there is a son’s right by birth in the property of joint family. It means, when a son is born in family, he acquires an interest in the property jointly held by the family.

The business of the Joint Hindu Family is controlled and managed by one person who is called ‘Karta’ or ‘Manager’. The Karta or manager works in consultation with other members of the family but ultimately he has a final say. The liability of Karta is unlimited while the liability of other members is limited to their shares in the business.

CHARACTERISTICS OF A JOINT HINDU FAMILY BUSINESS

Governed by Hindu Law :
The business of the Joint Hindu Family is controlled and managed under the Hindu law. There are two schools of Hindu law :
1. Dayabhaga, and
2. Mitakshara.
Management :

All the affairs of a Joint Hindu Family are controlled and managed by one person who is known as ‘Karta’ or ‘Manager’. The Karta is the senior most male member of the family. He works in consultation with other members of the family but ultimately he has a final say.

The members of the family have full faith and confidence in Karta. Only Karta is entitled to deal with outsiders.

But other members can deal with outsiders only with the permission of Karta.
Membership by Birth :

The membership of the family can be acquired only by birth. As soon as a male child is born in family, he becomes a member. Membership requires no consent or agreement.
Liability :

Except the Karta, the liability of all other members is limited to their shares in the business. The Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and amount of debt can be recovered from his separate property.
Permanent Existence :

The death, lunacy or insolvency of any member of the family does not affect the existence of the business of Joint Hindu Family. The family goes on doing its business.
Implied Authority of Karta :

In a joint family firm, only Karta has the implied authority to contract debts and pledge the credit and property of the firm for the ordinary purpose of the businesses of the firm.
Minor also a Partner :

In a partnership, minor cannot become co-partner though he may be admitted to the benefit of partnership. In a Joint Hindu Family firm minor is a partner.
Dissolution :

The Joint Hindu Family Business can be dissolved only at the will of all the members of the family. Any single member has no right to get the business dissolved.

BENEFITS OF HUF

Easy to Start :

It is very easy to start the Joint Hindu Family Business. No legal formalities are required to be faced, such as registration. It requires no agreement, though in actual practice, it is documented to avoid litigation and for regulatory purposes.

Efficient Management :

The management of Joint Hindu Family Business is centralised in the hands of Karta of family. In this business, Karta takes all decisions and gets them implemented with the help of other member. No other member interferes in his management.

Secrecy :

In Joint Hindu Family Business, all the decisions are taken by the ‘Karta’ himself. He is in a position to keep all the affairs to himself and maintains perfect secrecy in all matters.

Prompt Decision :

The Karta is the only person who exercises control and direction over the business. He may not consult anyone in taking decisions. This ensures prompt or quick decisions. Being the sole master, he takes prompt decisions and makes advantage of the opportunity.

Economy :

For the success of any business, economy is a must. It is well- balanced and maintained in Joint Hindu Family Business. The Karta of family spends money with great caution and economy.

Credit Facilities :

In Joint Hindu Family Business the credit facilities are more. One reason for this is that liability of the ‘Karta’ is unlimited. Karta is having personal relations with others, which are also helpful in raising credit.

Natural Love between Members :

In Joint Hindu Family Business, it is the natural love and affection which the members are having for each other. It helps to run the business more efficiently and smoothly.

Freedom regarding Selection of Business :

The Karta is at freedom to select any business of his choice. He has not to depend on others.

Hindu Undivided Family (HUF)

Create a HUF Deed:

You have to prepare a deed on stamp paper declaring the formation of the HUF. It should have all the details, including the name of karta, co-parceners, address and source of funds in the corpus. Creating a HUF Deed is not mandatory. However it is always beneficial to have a HUF Deed. Key issues to be noted in preparation of a HUF Deed are :

A HUF deed is a written formal document on a stamp paper (as applicable in the respective State) specifying the name of Karta and Coparceners of HUF.
The eldest male member of HUF becomes Karta of HUF.
The name of members of HUF and the name of the HUF is also required to be stated in the HUF Deed at the time of creating of HUF.
The name of HUF is usually the name of the Karta followed by the word HUF e.g. Ram Kumar HUF.
HUF Deed also states the capital with which the HUF has been initiated. There are various sources through which capital can be introduced.
A declaration is also provided by each member of family where they declare the name of Karta and also state that –
1. Karta has the authority of the accounts vested in his hand
2. Karta holds the right to govern all the transactions of the HUF accounts on behalf of the members.
Further, a rubber stamp of HUF will also be prepared. Rubber stamp should be Rectangular. Rubber Stamp will be affixed on all the documents pertaining of HUF to authorize the transaction.
It is recommended that the Deed should be notarised.
1. Register the Deed
2. Obtain PAN.
3. Once the declaration deed is made, the karta should apply for a permanent account number (PAN) for the HUF. This is mandatory because all financial transactions must carry PAN.
4. Open bank account
  After you are allotted a PAN, open a bank account in the name of the HUF. It is also advisable to get some stationery printed for official communication. The HUF is now functional. The karta will have to invest in tax saving instruments and file tax returns on behalf of the HUF.
  
  While there are tax advantages of forming an HUF, the following matters merit consideration:
  - One person cannot form HUF. An HUF is formed by a family.
  - An HUF is automatically created at the time of marriage.
  - HUF consists of a common ancestor and all of his lineal descendants, including their wives and unmarried daughters. after 1-9-2005, daughter married or unmarried, is a coparcener like a son.
  - Hindus, Buddhists, Jains and Sikhs can form HUFs.
  - HUF usually has assets which come as a gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
  - Once an HUF is formed it must be formally registered in its name. An HUF should have a legal deed. The deed shall contain details of HUF members and the business of the HUF. A PAN number and a bank account should be opened in the name of the HUF.
  - Use a capital asset to establish the corpus of the HUF. This can be ancestral property, assets gifted by relatives and friends, or received by the HUF through a will. If you give a personal asset to the HUF, the income will be clubbed with your own. Gifts of over 50,000 a year received by HUF will be taxable. The best way is for the HUF to receive assets as part of a will.

Key Points in creation of HUF and format of Deed for creation of HUF

Under the Income Tax Act, an HUF is a separate entity for the purpose of income tax return.
The same tax slabs are applicable to HUF as to individual assessee.
One cannot transfer your own assets/money into HUF.
If one have ancestral property and earning some income from this property, then it is better to transfer this asset to HUF and save tax up to exemption limit applicable to individual.
One can transfer the money received on sale of ancestral property /assets into your HUF.
The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF.
Existence of property or multiple members is not a pre-requisite to create HUF. A family which does not own any property may still have the character of Hindu joint family. This jointness is understood in terms of faith and food. This is because a Hindu is born as a member of the joint family.
Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.
The HUF is taxable as separate person under income tax hence one can save tax from basic exemption of Rs. 2.5 lakh. HUF will also gain from the tax slab structure of computing income tax.
Apart from basic exemption of Rs. 2.50 lakh, section 80C deduction up to Rs. 1.50 lakh is also available.

Hindu Undivided Family (HUF) Registration

Meaning of Joint Hindu Family Business

CHARACTERISTICS OF A JOINT HINDU FAMILY BUSINESS

Governed by Hindu Law :

Management :

Membership by Birth :

Liability :

Permanent Existence :

Implied Authority of Karta :

Minor also a Partner :

Dissolution :