HINDU UNDIVIDED FAMILY (HUF) By Nikhil Agarwal (M.COM, CS, ACMA, ACA) & Sudhir Saklani (B.COM, CS, LLM)

WHAT IS HUF? It is obvious that a non-Hindu family cannot get this status. So, A Parsi, Muslim or Christian cannot create a HUF. So, what is a HUF? The term 'Hindu Undivided Family' has not been defined under the Income Tax Act. It is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. This means that a membership into a HUF does not come from a contract but from status under hindu law. A HUF cannot be formed by a group of people who do not constitute a family; lineal descendents with a common ancestor is a must. Even though Jain and Sikh families are not governed by the Hindu law, they can still be treated as a HUF.

DAYABHAGA AND MITAKSHARA SCHOOL OF LAW Under the Dayabhaga system,the father is the sole owner and the exclusive possessor of the joint family property. No member can enforce the partition of the HUF so long as the father lives. But the Mitakshara law stipulates that the property vests in the HUF itself and not in any individual member of the family and therefore can be partitioned within the lifetime of the father. The Dayabhaga law is prevalent in West Bengal and Assam. Hindus in the rest of the country are governed by the Mitakshara law.

FORMATION OF HUF The most frequently asked question about HUF is: How does it come into being? To form an HUF, One has to do is Get Married. The HUF gets created as soon as a person complete the seven (or four,whatever) circles round the holy fire and become husband and Wife. There have to be a minimum of two people to constitute a family. The husband and wife together make up a family. They don't have to wait till they have a baby to constitute their HUF

CAN AN UNMARRIED FORM HUF No, an unmarried cannot form a HUF of which he seeks to be the Karta himself. He can very well be the member of the HUF of his father or grandfather, but to create his own HUF he has to wait till he gets married.

A HUF CONSISTS OF : Karta The karta has to be the oldest male in the family. If he passes away, his wife cannot become the karta. His eldest son will take his place. If he chooses not to, he can give up his right and the next son in line can take his place. Coparceners This is what all the male members are referred to as. A Hindu coparcenary includes the sons, grandsons and great-grandsons of the holder of the joint family property. By virtue of their birth, they acquire an interest in the property. Members The female members are simply called members

DAUGHTER CAN ACT AS COPARCENER On 9th September 2005, the Hindu Succession Act, 1956 was amended to provide that a daughter too could be a coparcener i.e. joint heir,like her brother to the joint family's assets and she too could enforce the partition of the family property to claim her individual share. She continues to be the coparcener in her father's HUF even after she gets married and forms another HUF with her husband.

Can there be an all-female HUF? Yes, there can be. Where a couple has only a daughter—-and the husband passes away,the mother-daughter duo can continue the HUF (although a problem may arise after she gets married and becomes a member of her husband's HUF). It has been held by the Allahabad High Court in CIT v. Sarwan Kumar 13 ITR 361 (All) that there can be an HUF consisting of female members. Can a female be the Karta? The answer can't be No in the light of the amendment in the Hindu succession Act in 2005.An unmarried daughter, in the unfortunate event of her father passing away, will become the Karta of the HUF if she has no brother.

Benefits of HUF Under the Income Tax Act, a HUF is treated as a separate entity for the purpose of assessment. However, the income of a joint Hindu family can be assessed as the income of a HUF Hindu only if the following two conditions are satisfied: There should be a coparcenary. There should be joint family ancestral property. Other investments too can take place under the broad head of HUF. For instance, a HUF can open a bank account in its name. A demat account to buy shares can also be opened. Even post office deposits and a Public Provident Fund account can be opened in its name.

W HICH INCOME IS REGARDED AS HUF INCOME ? Since the HUF is a separate entity, it can earn income from all the above except income from salary. All income that arises on the investment of the HUF's funds and utilisation of its assets is regarded as income and is separately assessed and taxed.

C APITAL FOR HUF A member of the HUF throwing his money into the common pool, or to use that overused cliché' the family hotchpot, is out of the question, thanks to Section 64(2) which would tax the income earned by the HUF on that money in the individual member's hands only but now this has been amended by finance bill 2012 and now clubbing will not apply to these type of transfer. Strangers can make gifts but only up to Rs (Section 56).

A way-out is to receive gifts from members of bigger HUFs, who though your relatives, aren't members of your smaller HUF. A father may make a gift of money to his son's newly- created HUF, clearly specifying in the Gift Deed that the gift is to his son's smaller HUF and not to the son himself. This will keep both Section 64(2)and Section 56(2) at bay. After the HUF has a nucleus of its own and gets going, care has to be taken to keep the HUF's affairs completely distinct from the individual members' affairs. Some other people, who aren't members ofthe HUF but are relatives in terms of Section 56(2) can also be found out.

H OW IS IT TAXED ? Though the HUF is taxed as separate entity, the tax slab which is applicable to an individual is applicable here too. It also enjoys the Rs 1,00,000 deduction under Section 80C. All the income tax slabs and deductions and exemptions available to individuals are also available to the HUF.

C AN IT BE PARTITIONED ? Yes, the HUF can be partitioned. This is actually a division of property where the share of each member is determined. Any coparcener can enforce the partition of the HUF and then the share will be divided between: ~ All coparceners ~ A son in the womb of his mother at the time of partition ~ Mother (gets an equal share if there is a partition between the sons and her husband has passed away) ~ Wife (gets a share equal to that of a son at the time of partition between father and sons) Income tax act does not recognize partial partition. So there should be complete partition of HUF.

Thanks Disclaimer Clause: Views expressed in this presentation views of the author do not necessary reflect those of the Institute.