Hindu Undivided Family (HUF)

India is a vast country, and it has many various religions. Every religion has its law that is governed individually. One of the many religions is the Hindu religion. Hindu religion has its laws which concern family affairs. The male member of the family who is married or as soon as he gets married is eligible to create HUF. Sikhs, Jain and Buddhists are not governed by Hindu Laws, but still, they can form HUF under the Income Tax Act 1961.

HUF stands for Hindu Undivided Family. A family comes together automatically from a HUF. It cannot be created under a contract, but it is formed automatically. Under Hindu Law, HUF consists of all the people who are the lineal descendants of their common ancestors. It can also include their wives and daughter of the family. The female member who is a widow and comes back to her father's place can also be a member of HUF. Daughter in-laws are also be treated to be a member of HUF. Also, the daughter in the family, at first she is considered to be a member of her father's HUF, but after her marriage, she is considered to be a member of her husbands HUF. HUF size keeps on changing. It increases by the birth or adoption of a child or by a daughter in law, and it decreases by a death of a person and the marriage of a daughter. HUF members are related to each other by marriage, blood and adoption.

HUF basically means that a person can save tax by forming a family unit and pooling in assets. It is not taxed on all the members. Instead, it is taxed separately.

HUF has its permanent account number, also known as PAN, and files a separate tax return.

HUF includes the following members

  • Karta

    HUF is managed by a Karta, who is the senior-most male member of the family. A Karta has some roles and powers. He can make decisions regarding the critical affairs of the family. He has the power of making decisions for the welfare of the family. He can choose to dispose of the ancestral property for an emergency or if there is a need to do so. He can also delegate his power of managing some affairs to the manager. A manager can be a family member, or else he can be an outsider too.

    Further, in 2016, Delhi high court cleared the status of women of being a Karta of the family. Now an independent daughter too can be a Karta of the family.

  • Coparceners

    According to the Hindu Succession Act 1956, an individual born in Hindu Undivided Family is a Coparcener. Both a boy and a girl are coparceners in HUF. They both share equal liabilities and rights. A daughter is a coparcener even after her marriage, and it passed to her children after her death.

    The coparcener share decreases with every birth in the family, and with every death, it increases. A coparcener must be a member of the HUF. That means a member need not be coparceners, but a coparcener could be a member of HUF. A wife and husband of the coparcener is a member of the HUF and not a coparcener of the HUF. Only a coparcener has the right to ask for the partition of a property.

How is HUF taxed ?

  • HUF can claim the deductions under section 80 in its income tax return.
  • HUF can take an insurance policy on the life of the members.
  • Also, investment can be made by the income of HUF, and these are taxable in the hands of HUF.
  • HUF is taxed at similar rates that as an individual.

Assessment of HUF

A HUF is a separate entity. Its income can be assessed if the conditions below are satisfied:

  • Firstly there should be a copartnership. In this, the income of HUF is assessed in the subsequent years until the coparceners claim the partition.
  • Secondly, there should be ancestral property. A man inherits ancestral property from his three male ancestors, I.e.his father, grandfather and great grandfather.

Further, property held by the daughter of the family is her sole property, and therefore any income is chargeable to tax in her hands as an individual.

Tax Assessment

Partition is meant as property division. Where the share of the property is divided to each member, the partition can be total or partial. Entire partition means that the entire property is divided among the coparceners, and the HUF is ceased. Partial partition means that a part of the property is divided to the coparceners who are willing to get separated, but the rest belongs to the HUF.

Following people are entitled to theirs share in the property.

  • A son in the womb of the mother during the partition
  • A mother gets an equal share if the partition is between the sons after the father's death.

Assessment of total partition

When the entire partition takes place, the entire property is divided among the members, and the HUF ceases to exist. After that, the coparceners are then assessed as individuals.

Assessment of Partial partition

This is satisfied under the provision of Section 171(9) of the IT Act, 1961, and the following conditions need to be fulfilled.

  • There should have been no partial partition before 31st December 1978.
  • This partial partition should have taken place in a HUF which was assessed before too.

Altogether, to gain or to earn the benefits of the HUF, these conditions should be fulfilled.

Enquire Now