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 orChristian 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 meansthat a membership into a HUF does not come
from a contract but from status under hindu law.
A HUFcannot 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
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.
continues to be the coparcener in her
father's HUF even after she gets married and
forms another HUF with her husband.

She

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 bejoint
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.

WHICH 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.

CAPITAL FOR HUF

A member of the HUF throwing his money into

the common pool, or to use that overused clich'
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 50000
(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 newlycreated 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.

HOW 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.

CAN 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.