HUF (Hindu Undivided Family) is a unique legal and tax entity recognized under Indian law, primarily governed by the Hindu Succession Act, 1956. It represents a family structure in which all members (coparceners) are lineal descendants of a common ancestor, including their wives and unmarried daughters. The main purpose of forming an HUF is to manage family assets jointly and enjoy tax benefits available under the Income Tax Act, 1961.

A Hindu Undivided Family is automatically created at the time of marriage and the birth of children within the family, but it can also be formally established by obtaining a PAN card in the name of the HUF and opening a separate bank account. The eldest male member, known as the Karta, manages the HUFís affairs and represents it in all financial and legal matters.

One of the major advantages of an HUF is its ability to act as a separate taxable entity. This allows it to enjoy an additional ?2.5 lakh basic exemption limit and other deductions under sections such as 80C, 80D, and 80G. Income earned from assets owned by the HUFósuch as rent, business profits, or investment returnsóis taxable in the hands of the HUF, not the individual members. However, salary income earned by individual members is taxed separately.

While an HUF offers significant tax-saving opportunities, it also has limitations. Dissolving an HUF or dividing its assets can be complex, and disagreements among members may lead to disputes. Therefore, forming an HUF is most suitable for families with joint income sources or ancestral assets.

In essence, an HUF is both a cultural and financial institution that facilitates collective wealth management and provides legitimate tax benefits for Hindu families in India.