Assessment of Hindu Undivided Family (HUF)

Assessment of H.U.F. :

A HUF is a separate entity for tax purpose and taxable as an individual at individual’s tax rate. Family means a group and plurality of persons is required. A single member whether male or female can not form an H.U.F. It is also not essential to have two or more male members to form an H.U.F. A sole surviving male coparcener and sister of widowed mother can form an HUF. A HUF or JHF is same. It consists of males descended, their wife’s and unmarried daughters and daughter-in-law. A daughter is a member of the family till her marriage and after that she ceases to be a member of the father’s family and becomes a member of the family of her husband as a daughter-in-law.

The male members of the family are coparcener. A coparcener must be a member of the family but a member of the family need not be a coparcener. A coparcenery is a creation of law. It cannot be created by an Act of parties. It consists of person who have a right by birth.

1.      H.U.F. Property : Existence of joint property or income is not an essential feature to form a H.U.F. Creation may be associated with the family property - by gift, blending etc. Property may be ancestral, acquired or transferred. But self acquired property mixed with joint family property is not much beneficial from tax point of view.

         W.e.f 09-09-2005, the dauhter besides becoming member of the husband’s family will also remain coparcener in her father’s HUF.

2.      Assessment : An H.U.F. is assessable as a separate and distinct unit. Coparcener’s interest in H.U.F.is not liable to taxed in the hands of coparceners as per Sec. 10(2) of Income Tax Act and Sec 5(ii) of Wealth Tax Act.

3.       Deductions available : While computing income of HUF, the following deductions can be   

          allowed from its GTI :

Partition :

1.     Sec.  171 - (a) Partial (b) Total or complete.

(a)    Partial Partition is no partition after 31.12.78 provided assessed before so far as Income Tax Act or Wealth Tax Act is concerned. Such family shall continue to be liable to be assessed under this Act & Wealth Tax Act as if no partition had taken place.

(b)    Total Partition - After total partition the family no longer exists as an H.U.F. It will only be recorded after the A.O. has made an inquiry in this matter. The total income of the joint family upto the date of partition shall be assessed as if no partition had taken place. And each of the member shall be jointly and severally liable for tax liability if any. 

5.      Sec. 171(4) Partition during the accounting year :

         Where there is total partition during the accounting year, the total income of the joint family in respect of pre-partition period is assessed in the status of HUF as if no partition has taken place. And deduction, exemptions available to the HUF are to be allowed and such income tax is to be tax at the rate applicable to the HUF. Each member or group of members is jointly and severally liable for the tax assessed on such income. The post-partition income is to be taxed as individual income of the member concerned. Exemptions, deductions, rebate, relief and tax rates applicable to individual will apply.

6.      Person entitled to a share on partition :

         The following persons are entitled to a share

(a)    All Co-parceners.

(b)    A son in the womb of his mother at the time of partition though born after partition.

(c)    Mother- On partition between sons after the death of father, the mother gets an equal share.

(d)    Wife - On partition between father and son, the wife gets an equal share to that of a son.

         Hindu Law - Primarily there are two schools of Hindu Law - Mitakshara and Dayabhaga. In Mitakshara Hindu Law, a male child acquires a right in the joint family property from the movement he is born. But in Dayabhaga Hindu Law a son gets a right in joint family property only after the death of his father. The father enjoys an absolute right to dispose of the property of the family according to his desire.

7.      General Principles :

     GTI and TI of HUF shall be computed in the same way as in case of an individual.

     A HUF can become a partner in a firm.

     Salary paid to the member of family or to HUF shall be allowed provided it is not excess and such

     person of the family taken active part in carrying on the business.

     Income earned by personal efforts of a member of HUF shall be treated as member’s personal income

     and not the income of family.

     Income from personal business of a member shall be taxed in the hand of members.

              Income from property transferred to a member if family is governed by Mitakshra School, the Karta has 

             a right to transfer any moveable property to any member within reasonable limit. 

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