A Hindu Undivided Family, which is also known as Joint Hindu Family is governed by Hindu Law.

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A Hindu Undivided Family (HUF) consists of individuals who have lineally descended from a common ancestor. In addition to Hindus, even Jain, Buddhist and Sikh families can create HUFs. The concept of a Hindu Undivided Family (HUF) as a separate entity for tax purposes was first recognised in 1917. And over the years, many families have enjoyed tax benefits because of this.

The Income Tax Act provides several opportunities for on creation of the HUF or the Hindu Undivided Family. HUF is governed under Hindu law board and could be formed by a married couple or by members of a joint family. HUF could be formed by two members and at least one among them should be a male member of the family.
Senior most male member of the family would become ‘Karta’.

For the sake of income tax, the HUF is considered as a separate entity and is therefore taxed separately.
This helps to separate tax obligations of an individual from that of his family. The income tax slab for HUF is same as that of an individual, with an exemption limit of Rs 2.5 lakh and qualifies for all the tax benefits under Section 80C, 80D, 80G and so on.
It also enjoys exemptions under Section 54 and 54F with respect to capital gains.

Ways to reduce tax outgo with an HUF

Rental Income from property: Rental income from a property could be received on behalf of a HUF instead of an individual account.

Business Income: Profits generated out of the family business, in the name of a HUF, shall be taxed accordingly and exemptions will give more leverage on tax saving.

Remuneration to Karta and members: Remuneration to Karta and other family members is an allowable deduction from income of an HUF.

Loan to HUF members: If the business, capital or investment of the HUF is expanding, then such expansion can be done in the individual names of the members of HUF by giving loans to the members from the HUF. The HUF may or may not charge interest on the loans given.

Family Settlement or Arrangement: The sole purpose of the family settlement should be to settle existing or future disputes regarding property, amongst the members of the family. Since this arrangement does not involve transfer, it would not attract gift tax, capital gains tax or clubbing. In a family arrangement, tax incidence is considerably reduced or it may even become nil.

Provisions of the Income Tax Act allow individuals to claim tax benefits on certain payments they make during a year. Similar benefits are applicable for an HUF.

Proposals by Karta on the life of a female member:

We have to get a letter from the other coparceners and all other members to the effect that they have no objection of affecting the policy on the life of that particular female member out of the HUF Funds. The Karta should also clearly indicate as to why the particular life is being chosen in preference to the coparceners and the other members. Since Moral Hazard plays a much more serious role in all these cases, it is necessary to insist on Special Moral Hazard Report from the Sr. Branch Manager.


Policies financed through HUF:

Proposed by Karta on own life –Allowed

Proposed by Karta on the life of any one coparcener - Allowed but letter from Karta and MHR should clarify why Karta chose one coparcener when there were many.

Proposed by Karta on the life of female member – Letter from Karta and MHR as above. No objection letter from other coparceners and member.


Maximum Insurance Allowed:

If life assured is Karta: Then full credit is given i.e. Average Income x his own eligibility as per age Multiple.

If co-parcener: Then his Share x his own eligibility as per age Multiple. e.g:

If average income under HUF is 2,00,000 and there are 4 members in HUF, then his share will be 25% i.e. 50,000.

His maximum eligibility will be 50,000 x Age multiple factor.

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