How to Open a HUF Demat Account?

A HUF Demat account allows the Hindu Undivided Families in India to invest in securities. If you are an investor and are a part of an HUF, you must know that HUFs are recognised as a separate entity under the Income Tax Act of 1961.

Using this Demat account, you can invest in securities, such as stocks, mutual funds, bonds, etc., just like a regular investor. Read this blog to learn about the eligibility criteria for the HUF account, the process to open it and more details.

Understanding the Concept of a HUF Demat Account

The HUF Demat account is a specialised account that allows a Hindu Undivided Family to hold, purchase, or sell securities as a single entity. If you are the head or “Karta” of the family, you can operate a HUF Demat and manage investments and trades on behalf of the other family members.

The Indian tax law considers your HUF as a separate taxable entity, and as the family’s head, you become a signing authority for investment, tax filings, etc.

What are the Eligibility Criteria for a HUF Demat Account?

Now that you know whether can HUF open Demat account in India, you must know that upon meeting certain criteria, you are recognised as a HUF. Take a look at the following section for HUF eligibility criteria for a HUF Demat:

• Your family must have at least one male family member along with female relatives, such as his wife or daughters who are unmarried, to be recognised as a HUF.
• In case the next senior-most family member is a female, she can also act as the head of the HUF.
• If there is an addition of a new member in the family due to a marriage, they automatically become a part of the HUF.
• Families that belong to the Hindu, Jain, Buddhist and Sikh communities are eligible for HUF criteria.

Documents Required to Open a HUF Demat Account Online

As an investor, if you are looking forward to opening a HUF Demat account, you must produce a set of documents. Take note of the documents below and open an HUF account seamlessly:

• Produce a copy of your HUF’s PAN card with a signature and the HUF seal.
• The head of the family, along with coparceners, also needs to produce individual PAN card copies with signatures.
• You must provide a valid address proof of your HUF with a proper seal and signature.
• If you are the “Karta” of the family, produce your attested and valid address proof. Produce attested copies of a valid address proof of the coparceners.
• Attach the bank account details of the HUF along with a cancelled cheque with the HUF’s name printed on it.

What are the Steps to Open a HUF Demat Account?

You can open a HUF Demat account online, with a Depository Participant (DP) by following the steps below:

Step 1: Choose your preferred DP, like a stockbroker, banking institution or any other financial institution registered with the SEBI.

Step 2: Head to the official website of the DP, get an account opening form for HUFs and fill it out accurately with details.

Step 3: Attach important verification documents like the PAN of the HUF, the family head, and the coparceners. Also, attach the address verification documents, bank details, and photographs.

Step 4: Double-check the details in the form and the documents for accuracy and submit them.

Step 5: Your DP might ask for a digital signature and a video KYC. Complete these requirements, and upon verification, the DP will activate the HUF Demat account.

How Does a HUF Demat Account Benefit a Family?

Now that you have the answer to whether can we open Demat account for HUF, let us discuss its benefits:

• Wealth Consolidation

  With a HUF account, you can enable your entire family to participate in investment activities collectively. A HUF Demat makes it easy to track all investments from a single place.

• Increased Investments

  As your family members can invest in wealth creation, it results in more optimised returns compared to individual investments.

• Tax Benefits

  The Indian tax laws consider HUFs as a separate entity such families enjoy tax benefits due to this. With a HUF Demat account, you can optimise your returns and reduce tax burdens.

What are the Limitations Of the HUF Demat Account?

Although having numerous benefits, a HUF Demat also has a few limitations that you must be aware of:

• Hard to Divide Assets

  As the accumulated wealth in a HUF account is family property, disagreement among family members during asset division can lead to complexities.

• Equal Rights

  Every coparcener of a HUF has an equal right to the accumulated wealth from investments, irrespective of their financial contribution. This might also lead to disagreements between members who contributed.

• Complex Tax Compliance

  Although there are tax benefits, the tax filing processes for HUFs involve hefty paperwork and administrative costs. You might also need a tax consultant while filing returns for your HUF.

Conclusion

A HUF Demat account allows the HUFs in India to invest in the securities market as a separate entity. You can open a HUF Demat online, much like an individual Demat account. You can enjoy HUF exclusive tax benefits, create wealth and more with such accounts.

FAQ’s

1. Are there any restrictions on a HUF’s stock market investments?

There are no specific guidelines that restrict a HUF from investing or trading. However, you must follow the generic trading and investment regulations, tax obligations, etc., while investing as an HUF.

2. Can an HUF Demat account be converted into an individual account?

No, you cannot convert a HUF account to an individual Demat account, as it must be linked with and managed by the family head.

3. What happens to the HUF Demat account if the Karta changes?

In case of a change of the family’s head, the immediate and senior-most member of the HUF can become the head. They need to submit documents to the DP to transfer the ownership.

4. Are there any specific tax implications for a HUF’s Demat account?

As the HUFs are a separate entity, they get a basic tax exemption of INR 2.5 lakh, including some exclusive deductions under Section 80C.