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HUF- Opening a Bank Account / DEMAT Account

1. Opening a Bank Account / DEMAT Account for HUF

2. HUF -  DEMAT or Depository Accounts

3. HUF -  Public Provident Fund ( PPF ) Account

4. HUF -  Capital Gain Account

1. Opening a Bank Account / DEMAT Account for HUF

A HUF can open a Bank account in any bank. The types of Bank accounts that can be opened by a HUF are Savings Account, Current Account or Term Deposit Account. In addition to this, it is also possible for HUF to open Accounts relating to borrowings from bank by way of Cash credit, Term Loan or any other types of loan. Moreover, a HUF can also open Demat A/c or Depository Account for the purpose of holding shares of a Company.

The foremost thing to be done for opening a Bank account of a Joint Hindu family is to give a Joint Hindu Family letter, which is generally required to be given by HUF as per the format given by the Bankers. Each bank has its own format, which is generally developed by the bankers after consultation with its legal department. A sample of such letter is given herein below.


As our HUF wishes to open an account with your bank in the name of XY HUF.

We beg to say that the first signatory to this letter i.e., XY is the Karta of the Joint family and other signatories are the adult co-parceners of the said family.

We further confirm that the business of the said joint family is carried on mainly by the said Karta as also by the other signatories hereto in the interest and for the benefit of the entire body of co-parceners of the joint family. We all undertake that claims due to the bank from the said family shall be recoverable personally from all or any of us and also for the entire family properties of which the signatory is the Karta including the share of minor-coparceners.

We hereby undertake to inform the bank Of the death or birth of a coparcener or any change occurring at any time in the membership of our joint family during the currency of the account.

Steps : Required for opening a Bank Account in case of HUF

While opening a Bank account, the following steps are required to be undertaken / followed: -
1. The style in which the Bank account is to be opened has to be decided and the style can be any one of the following styles: -

  1. XYHUF
  2. XY&SONS
  3. X Y & SONS (HUF)

In the above styles, X denotes the first name of the Karta of the HUF and Y denotes the family nam or title of the Karta. Further, in option d) hereinabove, the style X Kumar Z Kumar represents X as karta and Z as his son. Now that daughters have also become coparceners, there should not be a problem in keeping the name as X Kumar A Kumari, where A represents daughter of X.

2. After having decided the name in which the account is to be opened, the names of the members constituting the HUF is required which is generally as follows:

  1. Karta of the HUF
  2. Karta’s wife
  3. Karta’s son or sons
  4. Karta’s son’s wife or sons’ wives
  5. Karta’s son’s son or sons
  6. Karta’s son’s son’s wife or sons’ Sons’ wives
  7. Karta’s unmarried daughters
  8. Karta’s father
  9. Karta’s mother

The above list is not exhaustive and can further expand or reduce. The constitution of the HUF would depend upon the way HUF has come into existence. If the HUF comes into existence on’ receipt of inherited ancestral property by the Karta from his father, then all the members of his family including his father, son, son’s son, unmarried daughters become coparcener in such property and have therefore to be included as the members of the HUF. However, if the HUF comes into existence withOut any inherited property, but say by way of Gift, then in such cases, the HUF of the Karta would include the Karta himself, his wife, his son or sons, his unmarried daughters.
The names of the members of the HUF are generally required to be mentioned in the Account opening form.

3. The third thing that has to be decided as to who will be the signatory to the account to be opened in the name of the HUF. Generally it is the Karta of the HUF who operates the account. Sometimes, Karta may not want to operate the account and in such cases, it can be operated byany member or members of the HUF. There is no bar/restriction on any member or members of the HUF operating the account, if authorised. Depending upon the signatories who will be operating the account, a rubber Stamp is required to be prepared in the manner as follows: -



If Karta is the sole signatory in the account or in case any other member or members operate the account, then the stamp is required to be prepared in the following manner:



It is better to prepare the stamp in the following way so that either the Karta or any member is able to operate the account.



Now in the present new age banking, where banks are computerizing the operations, some banks do not require any stamp to be affixed at all since the manner in which the cheque will be signed is printed on the cheque itself.

Again, it is also possible that the account is signed not by Karta singly, but by any combination of members which can be either two or more. Such joint signatures can be used a tool for control.

4. After having decided the style and the signatory, the Account opening form has to be filled in which is generally very simple and contains usual details. A copy of the Permanent Account No. (PAN) card is required to be given while opening the account and the bankers also insist on Photographs of those persons who are given the authority to sign the account.

5. The funds for opening the account can be given out of the HUF funds. In case, the account is being opened for the first time, the cheques received by way of Gift (in case the HUF has been created by way of gift) can also be given for opening the Account. However, the bankers are generally reluctant to take third party cheques for the purpose of opening the account and prefer taking cheques from the membero1 the HUF or still prefer cash for opening the account. In such cases, the Karta or any other member can give the required cash or cheque as the case may be and later on whenthe account is opened, in the usual course, the money can be returned back to the member who has given the same. However care must be taken that the amount so taken by HUF (in cash) is less than Rs. 20000/- so as not to attract the provisions of Section 269SS of the Income-tax Act,1961.

6. After following the above procedure, the account is opened and the same can be operated like any normal bank account.

7. It is important to note that the Bankers do not allow any nomination in a HUF account and it is, therefore, important that the account is operated by more than one person, so that in case of any emergency/death of any member, the account can continue to be operated by the -remaining signatories without any break.

2. HUF -  DEMAT or Depository Accounts

  1. It is possible for the HUF to open a Demat account also and the formalities are same as that fr opening a normal account except that in case of Demat account, the Bankers insists on a separate agreement for dealing in shares which is standard and printed form. Such Demat account can be operated either by the Karta or a combination of Karta and any other member.

  2. It is very important that the Demat Account which is opened in the name of HUF has either multiple signatories or has signed a declaration for appointment of nominees if the bank accepts nomination. This is in order to protect the interest of HUF in the event of a death of a member of the HUF who may have been the sole signatory in the account. In such a case, the bank may not allow any transaction in the account and the shares etc held in the account may get frozen until a valid succession certificate from the Court of law is produced.

  3. Another issue to be kept in mind while opening a Demat account in the name of HUF is to c1earli distinguish the title of the account so that it doesn’t resemble with that of an individual account in the same Bank. This is in view of the fact that SEBI has issued guidelines that the Demat Account has to be opened in the name of Natural persons and in case of HUF account, bankers generally open the account in the name of Karta and the type of the account is classified as HUF account.

3. HUF -  Public Provident Fund ( PPF ) Account

  1. It may be noted that PPF accounts can no longer be opened in name of HUF. Initially when the scheme was framed, it was possible for HUE to open a PPF account. The restriction on opening account in the name of HUF were put into place w.e.f. 13th May, 2005 vide Notification No. GSR 291(E) dated 13th May, 2005 from Ministry of Finance. However, this did not affect the account which were already in existence as they could have continued till the maturity.

  2. Though the notification as above did not effect the accounts which were already opened in the name of HUF, the limit of Rs. 70000/- which could be deposited by a person was made applicable to the following types of account vide Notification No. GSR 6Z9(R) dated 4/10/2002:

    1. Individual self account and account(s) on behalf of minor(s) of - which the individual is guardian, taken all account together.

    2. Hindu Undivided family account

    3. AOP account as applicable in the State of Goa and Union territories of Dadra and Nagar Haveli and Daman and Diu.

It may be noted that vide Notification No.956(E) dated 7th December,2010,reported in (2011) 330 ITR (St.)1, the Provident fund Scheme,1968 has been amended to provide that an account opened on behalf of a Hindu undivided family prior to the 13th day of May, 2005, shall be closed after expiry of fifteen years from the end of the year in which the initial subscription was made and the entire amount standing at the credit of the subscriber shall be refunded, after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him. In the case of accounts opened on behalf of Hindu undivided family, where fifteen years from the end of the year in which the initial subscription was made, has already been completed, they shall also be closed at the end of the current year, i.e., the 31st day of March, 2011 and the entire amount standing at the credit of the subscriber shall be refunded, after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him.

Thus, in view of the Notification hereinabove, those HUF PPF accounts which have already completed 15 years from the date of initial deposit as on 31/3/2011 and the entire amount has to be refunded in the manner hereinabove.

Thus, the combined effect of the above is that HUF can no longer open PPF Account and no deposit also can be made in the HUF account.

4. HUF -  Capital Gain Account

This is another type of Account which can be opened by HUF assesses in order to avail exemption in respect of Capital gains arising to them under Section 54, 54D, 54F or 54G of the Income-tax Act, 1961 .The account to be opened in such a case is governed by the Capital Gains Accounts Scheme, 1988 which was notified by the Centra.l Board of Direct Taxes vide Notification No. 724(E) dated 221Id June, 1988. The salient features of such an account are as follows:

  1. The said account can be opened with all scheduled Banks and In this regard, a Notification No. 725(E) dated 22nd June,1988 has been issued which authorizes all the branches of 28 banks as follows(except rural branches) to receive deposits under the said scheme. The ljst of the Bank is as follows:

    1. State Bank of India

    2. State Bank of Bikaner & Jaipur

    3. State Bank of Hyderabad

    4. State Bank of Indore

    5. State Bank of Mysore

    6. State Bank of Patiala

    7. State Bank of Saurashtra

    8. State Bank of Travancore

    9. Central Bank of India

    10. Bank of India

    11. Punjab National Bank

    12. Bank of Baroda

    13. UCO Bank

    14. Canara Bank

    15. United Bank of mci

    16. Dena Bank

    17. Syndicate Bank

    18. Union Bank of India

    19. Allahabad Bank

    20. Indian Bank

    21. Bank of Maharashtra

    22. Indian Overseas Bank

    23. Andhra Bank

    24. Corporation Bank

    25. New Bank of India

    26. Oriental Bank of Commerce

    27. Punjab & Sind Bank

    28. Vijaya Bank

  2. It is further stated in the said notification that a rural branch in relation to a bank means a branch which is situated and is functioning at a centre, the population whereof, in accordance with the 1981 census, is less than ten thousand.

  3. There are two types of Account that can be opened under this Scheme and they are Account- A and Account-B. Account-A represents a Savings account and Account-B represents a term deposit account.

  4. It is to be noted that the deposit under the scheme has to be made within the due date of filing of return as applicable to the assessee in order to save the capital gains tax and therefore care must be taken to adhere to the date of opening the account and placing the deposit under the scheme.

  5. The withdrawals from this account are permitted for the purpose of utilization in accordance with the respective Section under which the account has been opened.

  6. The account can however be closed only with the permission of the Assessing officer who has the jurisdiction over the assessee by making an application in Form No. G.

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