All about Hindu Undivided Family

For long time,we have been getting request to discuss the concept of Hindu Undivided Family. The concept which has for years been linked to our joint family system is often misunderstood just as another separate entity created to save taxes. However, the structure and norms of an HUF are very complex and with proper guidance be a preferred way to create a pool of family assets.

A HUF is a entity created by family members up to four generations i.e. lineal ascendants or descendants of Hindus, Buddhists, Jains and Sikhs. There is no mention of any formal definition of HUF in the IT laws. The HUF follows the Mitakshara School of Law.

To start an HUF, an married individual with a child can start a HUF. The HUF needs to be formed by a male member.Some of common terms associated with HUF:

a)Co-parcerners – Members of a family who acquire right in the property of HUF by birth i.e. Father,son and daughters. The wife of the person forming the HUF is not a co-parcerner but a simple member.

b)Non Co-parcerners- Members of family who are part of HUF but cannot ask for partition or break down of HUF property. They can only claim maintenance expenses. A smaller HUF can also form a part of the bigger HUF.

c)Karta- The elder most male member of the family is declared as the Karta of the family. In case of his death, the responsibilities of a Karta needs to be fulfilled by next elder male son or if there is no son , the eldest daughter becomes the Karta.

d) Property under HUF – Any property which is received from ancestors by way of partition or way of gift through Will, additions to the existing properties, blended or properties thrown in common pool of HUF property. An individual can add his individual properties in the HUF. It then looses the individual ownership character. Any co-parcerner can add property to the HUF pool. Any member can also receive any gift for its co-parcerners ,members or any outsiders.

e) Partition – It is process of severance of the status of HUF under tax laws. As per tax requirements, the partition needs to be physical and not just notional. It can be partial or complete. In case of complete partition, the entire HUF ceases to exist. It can be partial where some members or properties go out with partition. Even on death of a co-parcener can only distribute the assets of his share and not the entire property.

f) Taxation -Since the HUF leads to creation of additional tax entity, there is a separate PAN card allocated for HUF. This gives the benefit to push the income slab lower to the level of individual incomes. For example, if in a family , husband has annual income of Rs 12 lakhs, wife of Rs 8 lakhs and a rental income of Rs 6 lakhs from a family home, then there are 3 possibilities: 

 

a) Rental Income gets added to husband's name and is taxed @30% tax slab.

b) Rental Income gets added to wife's name and is taxed @20% tax slab.

c) Create a HUF for family, add the ancestral property to it and the income is taxed on a separate entity for Rs.5.5 lakhs (after exemption limit of Rs 2.5 lakhs).

Thus HUF has much more benefit then just the tax angle associated with it. We would recommend that if required, you too can avail of it. For more information email us at saarthifp@gmail.com for a personalized advise.