Balwant Jain @Jainbalwant

Feb 20, 2023 • 54 tweets • Jainbalwant/status/1627700182967259136

A small thread on HUF law. Request you to retweet for wider benefit.

An HUF or Hindu Undivided is unique concept under the Income Tax Act. Only a Hindu can
have an HUF. In addition to all Hindus all Jains. Sikhs and Buddhist also can have an HUF.
1/n

Muslim Christian, Jew and Parsi cannot have an HUF. Members of four generations lineally
ascendant from a common male ancestor together constitute an HUF.
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HUF cannot be created by acts of parties the way a partnership or an LLP and company are
created. An HUF comes into existence by operation of law. Under Hindu law a Hindu family
comes into existence on marriage of the couple
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but under income tax laws, an HUF comes into existence only after a child is born to the
couple as coparcenary comes into existence when there are more than one coparceners.
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Anyone born in the family and one who is adopted in the family is a coparcener like sons,
daughters & grandchildren, but anyone who comes into the family by virtue of marriage
becomes member of the family like wife, daughter in law etc.
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A coparcener is a member as well but each member is not a coparcener.

All members are entitled to be maintained out of income & assets of the HUF. A coparcener
is entitled to ask for partition of the HUF asset

but a non-coparcener member cannot ask for partition of HUF assets but is entitled to get a
share as and when the actual partition of the HUF asset takes place.
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Section 6 of the Hindu Succession Act, 1956 governs rights of members of an HUF on HUF
assets. Only male members called coparceners were entitled to ask for partition and get a
share in the joint family properties prior to September 2005.
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Section 6 of The Hindu Succession Act, 1956 was amended in 2005 making daughters as
coparcener of the joint family thereby entitling each one of them for a share in the joint
family property equal to that of a son.
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The amendment made the daughters subject to the same rights and liabilities as a son. As
daughters were made coparcener, they automatically Now daughter are entitled to ask for
partition of the HUF assets.
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On partition daughters and sons will get equal share in the assets of the HUF. Let me point
out that she can renounce her share in favour of other members.
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Supreme Court in the case of Vineeta Sharma v/s Rakesh Sharma in August, 2020 has held
that the incidence of becoming a coparcener is connected with birth of a person so the date of
death of the father is not relevant for determining when the daughter became a coparcener.
12/n

The court held that though the daughter became a coparcener as soon as she was born but
her rights in the joint family property as coparcener gets crystallised on the day when the
amendment in section 6 of Hindu Succession Act 1956 came into effect i.e. 9th September
2005.
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Only a coparcener can become Karta of the HUF. Generally, the senior most coparcener of
the family becomes Karta of the HUF. However, if the senior most coparcener refuses to
become Karta or is incapacitated any other coparcener can become Karta of the HUF.
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As pre Hindu laws an HUF can consist of 4 generations consisting of descendent of one
common male ancestor. So more than 1 generations can be part of the same HUF at the same
time. Within a larger HUF there can be many smaller HUFs consisting of family of the
coparceners.
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A person can be a member of more than one HUF at the same time. so he can be a member
of his own HUF, HUF of his father, HUF of grandfather & HUF of his great grandfather.
There is no restriction on one person becoming Karta of more than one HUF if he is a
coparcener.
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As minor is a coparcener he can become a Karta of HUF if no other major coparcener is alive
but as a minor is incapable of entering into any contract under Indian Contract Act, mother
can act on behalf of the minor as manager but she cannot become a Karta of the Family.
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The HUF does not come to an end on death of the Karta as Karta and HUF are two distinct
things. The HUF continues after death of the Karta and the senior most coparcener becomes
Karta after death of the existing Karta.
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Conceptually an HUF can have only one Karta. However, for administrative purpose the
Karta can appoint any person whether a family member or not as manager of the HUF for
managing affair of the HUF.
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Only persons who have descended from a common male ancestor are treated as coparcener
and can become Karta of the HUF. So a daughter but not the , mother is treated as
coparcener so daughter can but mother can not become a Karta of the HUF.
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In the case of Mrs. Sujata Sharma Vs Shri Manu Gupta the Delhi Court on 22th December
2015 has categorically held that a daughter can become Karta of an HUF. Even a married
daughter can also become Karta of the HUF.
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Since members of the HUF are treated as relative of the HUF under the income tax laws, the
HUF can receive gifts of any amount from its members without there being any tax
implications for the gift transactions for both the donor member and the HUF.
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However, in respect of gifts made by the member to the HUF, clubbing provisions get
attracted and any income arising to the HUF from the asset so transferred will be clubbed
with the income of the HUF.
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The clubbing provisions will continue to apply even if the gifted asset is converted into any
other asset. Even after full partition of the HUF, the clubbing provisions will continue to
apply in respect of share allotted to the spouse of such member.
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HUF can receive gifts from non-members but if the aggregate of all the gifts received during
the year from all the sources exceeds fifty thousand rupees in a year, the aggregate value of
all the gifts will be treated as income of the HUF and taxed in the hands of the HUF.
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While accepting gifts from non-members, please examine the credentials of the donor and
his capacity to make such gifts else it may get taxed at 60% plus surcharge and cess. HUF can
claim deductions like 80C and 80D against gifts which are treated as income of the HUF.
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A Karta can gift any movable property of the HUF for the purposes like performing
indispensable act of duty, relief from distress, for support of the family without consent of
other coparceners.
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The gifts for affection can be made to any member of the family but the quantum of gift
should be reasonable. The Karta can make gift of HUF immovable property only for pious
purposes and that too within reasonable limits.
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If all the members and coparceners agree then there is no problem in giving gift to any
member or coparceners any assets of the HUF but the same will be treated as partial
partition for income tax purposes, which is not recognized under the income tax act
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and clubbing provisions will apply in case of such gifts. So for the gift made to a member
income arising to the member from such gifted asset will continue to be included in the
hands of the HUF.
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The gifts received by members from the HUF are not tax-free in their hands as gifts from
HUF to its members is not covered in the exception provided under Section 56(2)(x). So the
member will have to pay tax on it at the slab rate applicable.
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It is only when the member receives assets on full partition of the HUF that there is no tax
liability in the hands of the members as this is not treated as transfer within the meaning of
Income Tax Act.
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Earlier the HUF property would devolve by survivorship on the surviving members but now
after 2005 the share of individual coparcener passes on to the legal heirs after his death as
per the order prescribed in Schedule to the Hindu Succession Act.
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In order to determine share of the deceased member a notional partition is deemed to have
taken place immediately before death of the deceased. The remaining property shall
continue to remain in HUF.
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As per the Hindu Succession Act, 1956 a person cannot gift his share in the HUF assets
during his lifetime but is allowed to bequeath the same under a Will.
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As per the Hindu Succession Act, 1956 a person cannot gift his share in the HUF assets
during his lifetime but is allowed to bequeath the same under a Will.
35/n

An HUF can distribute its income year after year to its members and which is exempt in the
hands of the members under Section 10 of the income tax act. Any distribution of its current
income made by an HUF to its members is fully exempt in the hands of its members. 36/n

In my opinion, the exemption is available to the extent of current year’s income and does not
extend to distribution made by the HUF out of its assets or past income.
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A partial partition is not recognised by the income tax laws. So the partition of an HUF is
valid only if it is a full partition with respect to all the assets and with respect to all the
members.
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In order to make the partition fully effective for the purpose of income tax, you have to
obtain an order from your assessing officer recognising such total partition for which you
have to make an application to the assessing officer.
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Assets received on full partition of the HUF are fully tax-free in the hands of the members as
it is not treated as transfer under the tax laws. Please note that the partition among its
members need not necessarily be equal and it can be unequal if all the members agree.
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As the asset of the HUF belong to all the coparceners and not only to the Karta, the Karta
cannot expel any member and disentitle him from his share in the HUF assets. If you wish to
expel any members, you have to give him his share in the HUF assets.
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As the asset of the HUF belong to all the coparceners and not only to the Karta, the Karta
cannot expel any member and disentitle him from his share in the HUF assets. If you wish to
expel any members, you have to give him his share in the HUF assets.

An HUF can augment its capital in three ways. First way is by way of receiving gifts from
members and non-members. The second way is to receive some inheritance under a Will. An
HUF can receive an inheritance from any person.
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As there is no inheritance tax is in India & an inheritance is not treated as income u/s 56(2),
it does not have any tax implications. The 3rd way is through income which an HUF can earn
through business in its onw name or investments.
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If a person converts to other religion not considered as Hindu like Islam Christianity, his/her
children are disqualified from inheriting any asset from his/her ancestors. He no longer
remains member of the HUF and thus is not entitled to any share in the assets of the HUF.
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As per the Public Provident Fund Scheme 2019 only an resident individual can open a PPF
account and therefore HUF is not allowed to open the PPF account as per the PPF scheme.
44/n

There is nothing in the income tax act prohibiting an HUF by claiming deduction under
Section 80 C for contribution made by it to the PPF account of not only of any coparcener
but also any of the member including Karta of the HUF.
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HUF can purchase and own any number of properties through its Karta. An HUF can have
maximum of two properties as self-occupied properties in case these are actually occupied by
the family members.
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In case the HUF owns more than two properties and these are occupied by the members for
their use, the HUF has to treat any two properties as self-occupied and rest of the self-
occupied properties shall be treated as deemed to have been let out.
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notional rent in respect of such deemed to have been let out properties has to be offered for
tax even no rent is received in respect of such properties. So you can buy any number of
properties on behalf of your HUF either for self-occupation purpose or as an investment.
48/n

An HUF enjoys separate tax exemption limit. It can avail various deductions under Section
80C like payment of life insurance premium, repayment of home loan, investments in ELSS,
contribution to PPF account of its members etc.
49/n
HUF can claim deduction u/s 80D for mediclaim premium paid for its members. It can
claim exemption u/s 54,54F and 54EC in respect of long term capital gains. An HUF can
avail the tax rebate u/s 87A upto Rs. 12,500/- under old regime and Rs. 25,000/- under new
tax regime.
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It is also entitled to avail benefit of tax free long term capital gains on listed shares and
equity oriented schemes of mutual funds under Section 112A upto Rs. 1lakh every year.
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