Can HUFs collect money as deposits or create chit funds? Govt answers

A Hindu Undivided Family (HUF) cannot be registered as a Non-Banking Financial Company (NBFC) or chit fund company, and cannot collect money from the public as deposits, the government informed the Parliament on Tuesday, February 3, 2026. 

In a written reply in Rajya Sabha, Minister of State for Finance Pankaj Chaudhary said, “As per Chapter IIIC and section 45-I of RBI Act, 1934 and subject to regulations contained in Master Direction – Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 2016 dated August 25, 2016 (as amended from time to time), HUFs (being unincorporated bodies) can not be registered as NBFCs or chit fund company and can not collect money from public,” 

The minister was answering the questions: (b) whether HUFs are permitted to collect money in the form of deposits or otherwise; and (c) whether an HUF can be formed as a chit fund company or NBFC and collect money from people. 

This means that HUFs cannot legally collect money from common people. 

If a chit fund company or an NBFC breaks the rules, the Reserve Bank of India (RBI) and state governments can file a criminal case against them. 

“The power to pursue violation of the provisions (filing criminal case under Section 45-T of RBI Act) in respect of chit fund companies rests concurrently with the Reserve Bank and the State Governments concerned,” Chaudhary said in the written reply. 

If an RBI-regulated entity, including NBFCs, violates the rules, the RBI can take action against it on a case-by-case basis. The Bank can impose a penalty, restrict business or cancel the company’s registration. 

“In case of entities regulated by RBI (including NBFCs) found to be in contravention of extant guidelines, including unauthorised acceptance of public deposits, the Bank undertakes on a case-to-case basis, appropriate regulatory/supervisory action, inter alia, imposition of business restrictions, monetary penalty, and cancellation of Certificate of Registration,” he said. 

Status of HUFs

To another question that asked the status of an HUF in the context of income tax and legal position, the government said that an HUF is recognised as a distinct assessable unit for the limited purpose of taxation.

“Under the provisions of the Income-tax Act, 1961, a Hindu Undivided Family (HUF) is recognized as a distinct assessable unit for the limited purpose of taxation. Section 2(31) of the Act includes “Hindu undivided family” within the definition of “person” for assessment purposes. The Act, however, does not confer upon an HUF the status of a body corporate or a juridical person for undertaking regulated financial or commercial activities,” the minister said.