A Hindu Undivided Family business is a form of business unique to India and operated by the provisions of the Hindu Law Succession Act. The head of the HUF, called Karta, is responsible for managing the business. Typically, the eldest male member of the family is Karta, while the rest are known as co-parceners.
How to start a HUF business?
Any Hindu joint family can start a HUF by executing a deed, opening a bank account, and getting a separate PAN in the HUF’s name. These steps will establish the HUF as a separate entity.
Next, members need to form a corpus for the HUF – belonging to the entire family – using inherited capital assets or those received under a will, ancestral property, jewellery, deposits, even cash. Once the HUF is established, the members can use this corpus to start a business.
In such a case, the business started as a HUF, like any other business entity, will be liable to pay taxes for the total income earned. The business also enjoys the same tax benefits as any other individual taxpayer.
Additional Read: Tax Benefits on Business Loan
Advantages of starting a business as a HUF
- One of the primary advantages of applying for HUF is that the members can create two PAN cards and file the taxes independent of the entity. Meaning, every family member can claim tax benefits independently as well as for the HUF income.
- Since a business started as a HUF is managed by one person, the Karta, it is regarded as a sole proprietorship, making it eligible for business loans.
- The husband can be the ‘Karta’, and his wife could be the co-partner in the HUF unit. This way, any additional income earned by the woman will not be added to the net taxable income.
- The Hindu Undivided Family Act is recognised across all the states in India except Kerala.
Additional Read: Tax Benefits for Woman-Owned Businesses
Disadvantages of starting a business as a HUF
Alongside financial advantages like tax savings, easy access to finance and attractive business loan interest rates, there are also certain disadvantages of doing business as a HUF. They are:
- The HUF entitles equal rights to all the members of the family. Thus, common properties cannot be sold without obtaining the consent of everyone present in the entity. This often leads to legal disputes.
- In comparison to starting a business as a HUF, closing it is much more difficult. Post-partition, the assets need to be distributed equally among all the members. This can often create legal hassles and other disturbances.
To sum up
Are you a HUF looking for a business loan? If yes, then you can rely on Tata Capital’s business credit solutions. Our easy repayment terms, minimal paperwork, and lucrative interest rates ensure you can repay the borrowed amount at convenience.
Wondering what your potential EMIs will look like? Our business loan EMI calculator can help!