A Hindu Undivided Family or HUF as this is popularly known, is basically formed to save tax. As a separate PAN is allotted to HUF, its income is assessed separately from its individual members thus giving an extra tax benefit.
Major Disadvantage of forming an HUF is that all the assets in the name of HUF are assets of a family and not of an individual. All the members have a right in the assets of HUF.
An HUF is automatically constituted after marriage. It can also be formed by partition of an existing HUF into multiple units. A suitable name needs to be given to the HUF, taking into consideration the prevalent laws and the business that it intends to undertake.
Though it is not mandatory to have a deed for the formation of an HUF, it is advisable to execute one from a legal and taxation perspective. It should include details of the karta, members of the HUF consisting of coparceners, and other family members, the corpus as well as the business of the HUF.
An important requisite for the constitution of an HUF is its corpus or capital. This capital is separate from the assets owned by its members. The property received by way of a will in favour of the HUF can become the corpus.