Finance

Hindu Undivided Family – Formation, Advantages and Disadvantages

Hindu Undivided Family is a unique form of business entity which is governed by Hindu Law. It is not defined under the Income Tax Act. A Hindu Undivided Family consists of all family members who have descended from a common ancestor. It includes the unmarried daughters of the household also.

Any new member by virtue of marriage or birth becomes a part of the Hindu Undivided Family. A common ancestor is a prerequisite for the formation of a Hindu Undivided Family.

Forming a Hindu Undivided Family

Formation of a Hindu Undivided Family requires at least two members who are related to each other by a common ancestor. A Hindu Undivided Family can be created when a person marries and starts a family. In a Hindu Undivided Family, the income generated is taxable to the whole family. Formation of a Hindu Undivided Family does not require any documents.

Hindus, Jains, Buddhists and Sikhs can form a Hindu Undivided Family. Hindu Undivided Family usually comes with a gift, ancestral property or will in the form of assets.

After the formation of Hindu Undivided Family, it must be registered in the name of Hindu Undivided Family, and a separate PAN Card should be applied. Also, a Hindu Undivided Family deed needs to be registered, which will contain details of all family members.

Karta is the member having the most authority in a Hindu Undivided Family. A male or a female can both be the Karta of a Hindu Undivided Family

Advantages of Hindu Undivided Family

  1. A Hindu Undivided Family is like a business entity only run by family members. There will be disagreements, but as Karta has the supreme power in decision making, it leads to effective management.
  2. A child who is adopted by any family member can also become a part of Hindu Undivided Family
  3. The members of Hindu Undivided Family apart from Karta are known as coparceners and have limited liability.

Disadvantages of Hindu Undivided Family

  1. As the Karta is holding the supreme power, it may lead to conflict in the future.
  2. Dissolving a Hindu Undivided Family is tougher than its setup.
  3. The Karta may not be the most eligible person to lead the Hindu United Family, as it is given based on seniority not on capability.

To learn more about the types of business entities, concepts like sustainable development meaning and other accountancy concepts, stay tuned to BYJU’S.

 

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