UNDERSTANDING

THE CONCEPT OF

HINDU UNDIVIDED FAMILY

By CA Abhishek Jain

The fact remains that every individual is interested to save his tax. Tax
saving can be possible either by legal tax planning or by illegally tax
avoidance. Many tax payers resort to illegal activities to save income tax
but frankly speaking, such illegal activities are not a part of tax planning
process but are part of tax evasion process which I deprecate always.
However one can go ahead with legal ways of saving Income Tax and this
is possible only when we screen very carefully the provisions contained in
the Income Tax Act, 1961 and find out the pointers which are of
advantage looking to our facts & circumstances. A very effective and legal
way advised by CAs is creating a HUF. A Hindu Undivided Family offers
specific advantages as far as taxation is concerned. Income Tax Act &
Wealth Tax Act recognise the HUF as an independent assessable or
taxable entity. Therefore, HUF enjoy all deductions and exemptions as a
separate assessee. Overall objective behind the formation of HUF is to
save tax by having an extra benefit of slab rate, deductions & exemptions.
H.U.F. A SEPARATE LEGAL ENTITY UNDER INDIAN TAX LAW
U/s 4 of the Income Tax Act, 1961, Income-tax is payable by every person.
Person includes a Hindu Undivided Family as defined in sec. 2(31). The
definition of Hindu Undivided Family is not found in the Income-tax Act.
Therefore the expression Hindu Undivided Family must be construed in the
sense in which it is understood under the Hindu Law [Surjit Lal Chhabda vs.
CIT 101 ITR 776(SC)].
According to Hindu Law, Hindu Undivided Family is a family which consists of
all persons lineally descended from a common ancestor and includes their
wives and unmarried daughters. A Hindu Undivided Family is neither the
creation of law nor of a contract but arises from status.

HUF may be composed of

- Large Families; or
- Small Families; or
- Nuclear Joint Families
Please Note: Jain & Sikh families are not governed by Hindu Law. However, for
the purpose of Income tax Act, such families are treated as Hindu Undivided
Families.

CONCEPT OF COPARCENER
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A Hindu coparcenary includes those persons who acquire by birth an

interest in joint family property, whether inherited or otherwise acquired
by the family. Only a male member of a family can be a coparcener while
the membership of a HUF consists of both males and females. All the
coparceners of the family constitute what is called a Coparcenary. All
the coparceners are members of a HUF but all members of a HUF are not
coparceners.
The relevance of concept of coparcener is that only coparceners can ask
for partition. The other family members; i.e., other than coparceners in a
HUF, have no direct claim over HUF property, but can claim only
through the coparceners. When a partition takes place, member (mother
or widow) of the joint family may get a share equal to the sons and also it
is necessary to provide for maintenance and marriage of the unmarried
daughter out of family property. The coparcener must be a member of
the family but a member of the family need not be a coparcener.
SOLE SURVIVING COPARCENER
A Coparcener outliving all other Coparcener is known as Sole Surviving
Coparcener. He may be alone in family or there may be some other female
members also.
Effect of Subsequent marriage of sole surviving coparcener and not
getting a son
In CIT v. Purshotamdas K. Panchal [2002] 257 ITR 0096 [Gujarat], it was

held that:
An individual who receives ancestral property at a partition and
who subsequently acquires family, but has no male issue, would
hold that property only as the property of the family. Under the
Hindu law the wife of the coparcener is certainly a member of the
family. Whatever be the school of Hindu law by which a person is
governed, the basic concept of a Hindu undivided family in the
sense of who can be its members is just the same. Thus, in order
to constitute a joint family, it is not always necessary that there
must be two male members.
SCHOOL OF THOUGHTS UNDER HINDU LAW
There are two schools of Hindu Law1. Mitakshara &
2. Dayabhaga.
Under the Mitakshara School, each son acquires by birth an equal interest with
his father in the ancestral property.

Under the Dayabhaga School which prevails in West Bengal and Assam,
a son does not acquire by birth in ancestral property. He acquires
interest only on the death of his father. Father enjoys an absolute right
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to dispose of the property of the family according to his desire. After the
death of father, his son does not, by operation of law, become members
of the joint family. The sons remain as co-owners with definite shares in
the properties left by father unless they decide to live as a joint family.
From the Gems of Judiciary
1. C. Krishna Prasad vs. CIT97 ITR 493]

A single person, male or female, cannot constitute a Hindu

Undivided Family. An individual, who has obtained a share on
partition of a joint family, has potentialities of creating a joint
family; but until he marries, he alone cannot be considered as a
joint family.
2. CIT vs. M.M. Khanna (1963) 49 ITR 232 (Bom)]

STRANGER can be introduced in HUF only by adoption.

3. Gowli Buddanna vs. CIT 60 ITR 193

A joint family may consist of a single male member with his wife
and daughter(s) and it is not necessary that there should be two
male members to constitute a joint family.

RIGHTS AND DUTIES OF MEMBERS OF HUF

As specified under the Hindu law, various members of the family are
entitled to rights, etc., as given below:
1. The coparceners of the HUF are entitled to demand partition.
2. Besides the coparceners, the Hindu widows under the Hindu Womens
Right o Property Act, 1937, are also entitled to demand partition just as
her husband could have done.
3. The members of the HUF which include male and female members
daughters and children of the male members are entitled to
maintenance. Maintenance includes food, shelter, clothing, education,
medical aid and marriage.
4. A member of the HUF is entitled to own and possess his separate
property besides his interest in the HUF property.
5. The widow and children of a deceased coparcener have the right to be
maintained out of the HUF property.
6. If a coparcener or other member converts himself into any other religion
like Islam or Christianity, he ceases to be a member of family and he
cannot enjoy joint status along with other members.
7. A coparcener or member may enter into partnership with Karta of HUF
by bringing his capital or even without bringing any capital but
contributing his skill and labour only.

MANAGER OF HUF OR KARTA

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Property belonging to HUF is managed by any senior male member of

HUF. Such member is known as Karta of HUF. Thus, Karta is manager
of HUF and have controlling powers in respect of affairs of HUF. In
General Senior most member acts as Karta in family. However, it is not
necessary that only senior most member can act as karta. Sometime, due
to inability of senior most member because of infirm, ailing or even a
leper, the next senior male member of Family take over as Karta of HUF.
Even in case of absence of senior male member, the elder Minor Son
could act as Karta of HUF [Budhi Jena v. Dhobai Naik (AIR 1958 Orissa 7)].
But Supreme Court in CIT vs. Seth Govindram Sugar Mills [1965] 57 ITR 510
(SC) held that co-parcenership is necessary qualification for acting as
Karta of HUF.
Please Note: In case of Darshan vs. Prabhu ILR (1946) All 692, it is held that
there can be more than one Karta of HUF.

FEMALE AS KARTA
Many courts had held that only a coparcener can become Karta of HUF.
Since, a female was not considered as coparcener, she was not
empowered to act as Karta prior to amendment in Hindu Succession Act.
However, w.e.f. 6thSeptember, 2005, after amendments made by Hindu
Succession (Amendment) Act, 2005 in respect of position of female
member, the daughter of coparcener shall by birth become a coparcener
in her own right in the same manner as the son.
Therefore according to my opinion, after the Hindu Succession
(Amendment) Act, 2005, Female Coparcener can act as Karta of HUF.
POSITION OF FEMALE IN HUF
After amendment made by Hindu Succession (Amendment) Act, 2005,
daughter can be coparcener of HUF like the sons of HUF. After her
marriage she becomes member of her husbands HUF and continues to
be a coparcener of her fathers family. Being a coparcener, she can also
seek partition of the dwelling house where the family resides and she can
also dispose of her share in coparcenary property at her own will. If a
Hindu dies, the coparcener property shall be allotted to the daughter as
is allotted to sons. If a female coparcener dies before partition, then
children of such coparcener would be eligible for allotment, assuming a
partition had taken place immediately before her demise. A widow of a
pre-deceased son even though remarried is now eligible for share in
property as legal heir of the pre-deceased son of the family.
CONDITIONS UNDER INCOME TAX ACT, 1961
The income of a joint Hindu family may be assessed in the status of HUF if the
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i.

There should be a co-parcenership;

ii.

There should be a joint family property which consists of ancestral

property, property acquired with the aid of ancestral property and
property transferred by its members.

iii.

It may be pointed out that once a joint family income is assessed as that
of Hindu Undivided Family, it will continue to be assessed as such in
future years till partition is claimed by its coparceners.

Under the Hindu Law, ancestral property is the property which a person
inherits from any of these three immediate male ancestors, i.e. his father,
grandfather and great grandfather.

BENEFITS AND DRAWBACKS OF HUF

The major advantage of forming a HUF is that family get an identity of
separate assessee under Income Tax Act & thus eligible to claim separate
slab rate and various other deductions & exemptions. HUF holds its own
Permanent Account Number & therefore one can split the Income, by
proper tax planning, in the Income of individual and Income of HUF
resulting in tax saving.
Like every coin has two sides; there are some disadvantages as well.
1. Since HUF is a separate assessee under income tax act, therefore we have to
maintain separate books of accounts of HUF. Further, we need to file Return
of Income of HUF separately for each previous year, which result in extra
cost to assessee.
2. Assets of family in the name of HUF are the assets of family and not the asset
of specific Individual. The members of HUF have legal right in the assets of
the HUF. Therefore proper caution should be exercised while gifting assets to
the HUF as whole family would be having a share in the assets of family.

CREATION OF HUF- LEGAL REQUIREMENTS

Till now we have understood the major advantage of forming a HUF. Now
a question arise How to Create a HUF? There are three simple steps to
create HUF. These steps are as below:
1. Create HUF Deed & Requirement of Rubber Stamp of HUF
2. Apply for HUFs Permanent Account Number
3. Open Bank Account in the name HUF

A. CREATE HUF DEED & REQUIREMENT OF RUBBER STAMP OF HUF

Creating a HUF Deed is not mandatory. However it is always
beneficial to have a HUF Deed. A HUF deed is a written formal
document on a stamp paper stating the name of Karta and
Coparceners of HUF. The eldest male member of HUF becomes Karta
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of HUF. The name of members of HUF and the name of the HUF is
also required to be stated in the HUF Deed at the time of creating of
HUF. The name of HUF is usually the name of the Karta followed by
the word HUF e.g. Ram Kumar HUF. HUF Deed also states the
capital with which the HUF has been initiated. There are various
sources through which capital can be introduced in the HUF which
we will learn later.
A declaration is also provided by each member of family where they
declare the name of Karta and also state that
A Karta has the authority of the accounts vested in his hand
B Karta holds the right to govern all the transactions of the HUF
accounts on behalf of the members.

Further, A Rubber stamp of HUF will also be prepared. Rubber stamp

should be Rectangular. Rubber Stamp will be affixed on all the
documents pertaining of HUF to authorize the transaction.
Format of HUF Deed is given at the end of this article.

B. APPLY FOR PAN

Since HUF is a separate assessee under Income Tax Act, 1961,
therefore HUF have to hold its own permanent account number. A
separate application for PAN Card can be made, in Form 49A, by the
Karta of HUF on behalf of HUF for allotment of PAN. On allotment of
PAN, HUF is required to file separate Income Tax Return & can avail
all the benefits under Income Tax Act, 1961.
C. OPEN BANK ACCOUNT IN THE NAME OF HUF
As regards bank account of a HUF, it should be either in the name of
the HUF or in the name of the Karta of the HUF with a specific
declaration that the account is that of the HUF. The members should
also be careful and not deposit their personal funds in the HUF bank
account as only funds belonging to the HUF can be kept in it.
Normally, only the Karta is authorized to sign all cheques and operate
the account on behalf of the HUF. However, he may also authorize
any other member of the HUF to operate the same on behalf of the
HUF. A person, who desires to bequeath some property to his son or
sons, may also provide a specific instruction in his will to transfer the
assets on his demise to the HUF or his son or sons. This will result in
effective tax savings in the hands of the beneficiary sons.
CREATION OF HUF- BY OPERATION OF LAW
Typically, a HUF is automatically created. As the name suggests, a HUF
means a family of Hindus. However, under the Indian tax law, persons
belonging to the Jain and Sikh religion can also form HUFs. The
existence of a HUF requires at least two members of a family, of which at
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least one should be male. Once member of a HUF receives any ancestral
property from any ancestor three generations above him, a HUF is
automatically created. However there are some legal requirements also
which we have already understood. Capital of Hindu Undivided Family
can be created by following ways:
(A) Blending of individual property with the family Hotchpots;
(B) Receipts of Gifts;
(C) Doing Joint labour for the benefit of HUF;
(D) Inheritance through a specific bequest under a Will;
(E) Partition of a larger Hindu Undivided Family;
(F) Reunion of separated coparceners.

BLENDING OF INDIVIDUAL PROPERTY WITH THE FAMILY HOTCHPOTS

Blending means transfer of ones individual property in the common
hotchpots and make it a part of the common property of the HUF. It is
necessary to waive all separate rights of the property, which must be
clearly established through a declaration. Only the coparcener is entitled
to throw in HUFs common property. Blending can be utilized for creating
smaller HUF.
SECTION 64(2) OF I. T. ACT, 1961
As per section 64(2) of the Income Tax Act, if any property has been transferred
by the individual, directly or indirectly, to HUF, otherwise than for adequate
consideration, then the income derived from such property shall be deemed to
arise to the individual and not to the HUF. Similarly provision was inserted in
the Wealth Tax Act, 1957 under section 4(1A). Therefore, it is clear that rights
of members of HUF do not get enlarged on throwing property into family
hotchpots, income from said property had to be treated as assessees individual
income only.

CREATION OF HUF BY RECEIPTS OF GIFTS

HUF is a creation of law and cannot be created by the act of parties;
therefore, HUF cannot be created for the first time by a gift from the
stranger. If HUF already exists, gift can be made by a stranger to such
HUF. The gifted property will be HUF property if the gift is made to HUF.
Intention of donor & the character of the gifted property will depend on
the construction of the gift deed.
CREATION OF HUF BY DOING JOINT LABOUR FOR THE BENEFIT OF HUF
Property acquired in the course of some business carried on by the
persons constituting a joint Hindu family, takes the characteristic of joint
family property. As per Hindu law, in case of properties not acquired with
the aid of joint family property, it is presumed that property acquired by
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coparceners by working together is joint family property unless the

persons concerned desire to hold it as co-owners. This is valid if the
coparceners are carrying on work together and belong to the same line of
ancestors. The income from such property is out of the purview of section
64(2) of the Income Tax Act, 1961 and section 4(1A) of the Wealth Tax
Act, 1957. In the cases of properties acquired with the aid of joint family
property is also the joint family property.
CREATION OF
UNDER A WILL

HUF

BY

INHERITANCE

THROUGH A SPECIFIC BEQUEST

A HUF can also be created by will of a person provided the will is valid
and there is a specific bequest in favour of the HUF as held by Punjab &
Haryana High Court in CIT vs. Ghanshyam Das Mukim (1979) 118 ITR
930. Moreover, HUF need not be in existence at the time of execution of
will. Even a stranger can bring a HUF into existence by making a will in
the favour of HUF of a person.
CREATION
FAMILY

OF

HUF

BY

PARTITION

OF A LARGER

HINDU UNDIVIDED

Partition of an existing HUF can also result in creation of many smaller

HUFs. As per Hindu Law, the property does not change its character on
partition. Property received by a coparcener having a family, continues to
have characteristic of HUF. However, the partition has to be total
partition because as per section 171(9) of Income Tax Act, 1961 it does
not recognize partial partition. In case of married coparceners who have
no child, the property will continue with the status of HUF as held by
High Court of Madhya Pradesh in CIT vs. Krishna Kumar (1982) 10
Taxman 292 (MP).
CREATION OF HUF BY REUNION OF SEPARATED COPARCENERS
After partition of HUF, members may re-unite to form a new HUF.
However, there are certain conditions to make such reunion valid in the
eyes of law.
1. Reunion can take place only when there was in existence a HUF and there
was total partition of such HUF.
2. It can take place only between persons who were parties to the original
partition and to support such reunion, there must be an agreement
between the parties.
3. To constitute a reunion there must be an intention of the parties to reunite
in estate & interest and such intention is evident.
4. As per Mitkarsha & Dayabhaga, a member of a joint family once separated
can reunite only with his
Father,
Brother or
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 Paternal uncle but not with any other relation.

From the Gems of Judiciary
1. CITVs A.M. Vaiyapuri Chettiar & Anr. (1995) 215 ITR 836 (Mad)

It is not necessary that all the property belongs to HUF should be

brought back in to the re-united joint family. This reunion is said to be
VALID
2. CIT Vs Rupchand Routhmall (1963) 50 ITR 295 (Cal)

The minor cannot be a part of reunion neither by self nor by someone on

behalf of such minor.

ASSETS OF HUF
Following type of assets are generally accepted as Assets of HUF:
1) Ancestral Property;
2) Property allotted on Partition;
3) Property acquired with the aid of Joint Family property;
4) Separate of Property of Coparceners which is blended with the Property
of HUF.
A HUF can hold assets such as shares, securities, jewellery, movable and
immovable property. These assets can be either acquired by a HUF by way of a
gift which is specifically instructed to be given to the HUF or it can receive
assets on partition of a larger HUF of which its coparcener was a member and
the same is treated as HUF property. Assets can also be received by a HUF by
way of instructions provided in a will where the assets are instructed to be
bequeathed to the HUF. However, after the enforcement of the Hindu
Succession Act in 1956, if there is no will, on the death of a benefactor, the
assets cannot devolve upon a HUF but only on the individual inheritors.

PARTITION OF HUF
AFTER PARTITION

UNDER INCOME

TAX ACT, 1961 &

ITS

ASSESSMENT

Partition means Severance of Status of HUF. Partition could be partial or

total. However, as per Sec. 171(9) only total partition of HUF is
recognised under Income Tax Act, 1961. Partition may be a (i) total or
complete partition (ii) partial partition.
Where all the properties of the family are divided amongst all the members of
the family, and the family ceases to exist as an undivided family, it is known as
total or complete partition.
On the other hand, where one or more coparceners of the HUF may separate
from others and the remaining coparceners may continue to be joint or some of

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the properties are divided and the balance remain joint it is known as partial
partition.
Partition can only be claimed by a coparcener. But, when there is a partition of
HUF the following persons are entitled to a share in the assets of the HUF:
(1) All coparceners.
(2) Mother is entitled to a share equal to the share of a son in case of death
of the father.
(3) Wife gets a share equal to that of a son if a partition takes place between
her husband and his sons. She enjoys this share separately even from
her husband.
(4) A son in the womb of the mother at the time of the partition.
On a partition between the members of a joint family, the shares are allotted as
under:(1) On a partition in a HUF which includes father, mother and sons, mother
has no right to claim partition but when a partition is actually affected,
she takes a share equal to the sons.
(2) On a partition between a father and his sons where mother is not living,
each son takes a share equal to that of the father. Suppose there are four
sons, each son of that father will take 1/5th share of the property.
(3) If a joint family consists of brothers, they take equal shares on a
partition.
(4) Each branch takes per stripe as regards every other branch, but
members of each branch take per capita as regards each other.
(5) None of the unmarried daughters have a right to share on the partition
but the partition should provide for their maintenance and education till
marriage and for their marriage expenses. However, w.e.f. 9.9.2005, the
daughter whether married on unmarried shall also be entitled to equal
share on partition as she has also been treated as coparcener like son.
PROCEDURE TO EFFECT PARTITION AND CONSEQUENCES AFTER PARTITION ARE AS
FOLLOWS:

A Hindu family hitherto assessed as undivided shall be deemed for the

purposes of this Act to continue to be a Hindu Undivided Family, except
where and in so far as the partition has been recognized by the Assessing
officer under this section.

Where, at the time of making an assessment under section 143 or

section 144, it is claimed by or on behalf of any member of a Hindu
Undivided Family assessed as undivided that a total partition has taken
place among the members of such family, the Assessing Officer shall
make an inquiry there into after giving notice of such inquiry to all the
members of the family.

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On the completion of the inquiry, the Assessing Officer shall record a

finding as to whether there has been total partition of the joint family
property, and, if there has been such a partition, the date on which it
has taken place.

Order u/s 171 passed by the Assessing officer after issuing a call memo
only to Karta of the HUF and not other members of the family did not
comply with the mandatory requirement of Section 17(2), and therefore,
illegal and not valid. Matter remanded back to the Assessing Officer with
the direction to pass an order under section 171 after notifying all the
members of the HUF and hearing them. [P.G. Srinivasetty & Sons (HUF)
vs. ITO (2010) 41 DTR 283 (Kar.)]

Where a finding of total partition has been recorded by the Assessing

Officer under this section, and the partition took place during the
previous year the total income of the joint family in respect of the period
upto the date of partition shall be assessed as if so far no partition had
taken place; and each member or group of members shall, in addition to
any tax for which he or it may be separately liable and notwithstanding
anything contained in Clause (2) of section 10, be jointly and severally
liable for the tax on the income so assessed.

Where the finding of total partition has been recorded by the Assessing
officer under the section, and the partition took place after the expiry of
the previous year, the total income of the previous year of the joint family
shall be assessed as if no partition had taken place; and each member or
the group of members shall be jointly and severally liable for the tax on
the income so assessed.

Notwithstanding anything contained in this section, if the Assessing

Officer finds after completion of the assessment of a Hindu Undivided
Family, that the family has already affected a partition, and every such
person shall be jointly and severally liable for the tax on the income so
assessed.

For the purposes of this section, the several liability of any member or
group of members thereunder shall be computed according to the
partition of the joint family property allotted to him or it at the partition,
whether total or partial.

The provisions of this section shall, so far as may be, apply in relation to
the levy and collection of any penalty, interest, fine or other sum in
respect of any period upto the date of the partition, whether total or
partial, of a Hindu Undivided Family as they apply in relation to the levy
and collection of tax in respect of any such period.

PARTITION UNDER HINDU LAW VIS--VIS INCOME TAX ACT,1961

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The most important point to be noted for recognition of a partition in

joint family which has been hitherto assessed is the condition that there
should be a partition by metes and bounds. There should be a physical
division of the property under the income-tax or wealth tax laws,
although Hindu law recognizes partition by mere severance of status
without a physical division. Though physical division by metes and
bounds is mandatory, but if the property is not capable of physical
division, an exception is possible [Joint Family of Udayan Chinuttai v/s
CIT (1967) 63 ITR 416]. But merely because property of the family
consists of immoveable properties there need be no inference that they
are indivisible [Kalloomal Tapeswri Prasad (HUF) vs. CIT (1982) 133 ITR 690
(SC)].
A complete partition with unequal shares as may be agreed between the
parties is not illegal and can be final. However, an unequal partition
between karta as the sole adult member and the minor children may be
challenged at the instance of the minor children on attaining majority of
having a partition reopened by the Court. Such a reopening however will
not only be permitted if the division is unjust and unfair.
The Supreme Court in the case of Kapurchand Shrimal vs. CIT (1981) 131
ITR 451 (SC) held that the Assessing Officer cannot continue to make
assessment on HUF without disposal of the application made for
partition. If such assessment is done, it shall not be valid and it has to
be set aside so that assessment can be made in conformity with the
order under Section 171 which the Assessing Officer is bound to pass in
accordance with law.
Partial partition is not recognised for tax purposes and as such the joint
family shall continue to be liable to be assessed as if no such partial
partition had taken place. Each member of such family, immediately
before such partial partition and the family shall be jointly and severally
liable for any sum payable under the Act. [Sec. 171(9)]
RESIDENTIAL STATUS OF HUF
Section 6(2) of the Income-tax Act, 1961, clearly contemplates a situation
where a HUF can be non-resident also. In fact, HUF can also be Not
Ordinarily Resident. HUF will be considered to be resident in India
unless, during the previous year, the control and management of its
affairs is situated wholly outside India. In such a case, it will be treated
as non-resident HUF.
Section 6(6)(b) of the Income-tax Act, 1961 further provides that,
(i) In case of a HUF whose manager has not been resident in India in nine
out of ten previous years preceding the previous year or
(ii) Has, during the seven previous years preceding that year, been in India
for a total 729 days or less,

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Such HUF is to be regarded as not-ordinarily resident within the

meaning of the Income-tax Act, 1961. As such, it is not necessary for
a HUF to be resident in India.
Under the Income Tax Act the residential status is determined with
reference to the previous year relevant to a particular assessment year.
Therefore the residential status of HUF may also be different for different
assessment years considering the facts of relevant previous year.
In case of change of Karta of HUF during the year, the residential status
of HUF can be determined by considering the period of stay in India of
both Karta of HUF i.e. previous Karta and successive Karta.
RESIDENT BUT NOT ORDINARILY RESIDENT HUF
A HUF can get a resident but not ordinarily status (RNOR) if the Karta or
manger has been a non-resident in India in nine out of the ten preceding
years or has been a resident in India in two out of the seven preceding
years. Thus, where the Karta decides to return to India after his
residence in any country, the HUF will not turn to resident HUF in India
straightaway but it will get the benefit A N.O.R. HUF also enjoys tax
advantage in as much as on the return of the Karta, the HUF is treated
as R.N.O.R. for the next nine years. The advantage of NOR status is that
all income from property or investments belonging to the HUF outside
India will be exempt from tax in India.
NON-RESIDENT HUF
What applies to non-resident individuals will also, in some cases, be
applicable to a non-resident HUF. A HUF, whose management and
control is exercised wholly outside India during the financial year. From
a tax point of view, if it can be shown that all decisions concerning the
family members and the affairs of the HUF were taken outside India
during the relevant year, that HUF will enjoy all benefits also available to
a non-resident individual and the same tax exemptions.
INCOME FROM HOUSE PROPERTY IN THE NAME OF HUF
HUF can hold house property in its own name. Property purchased with
the aid of joint family funds, howsoever small that may be, still the
property would be HUF property & cannot be property of the individual.
Therefore, any rental income arising from such house property is treated
as income of HUF under House Property Head. Further following benefits
are also available for HUF
1. Benefit of Self occupied one Residential House Property; &
2. Tax benefit by way of Deduction of Interest on Loan & Repayment of
Loan; &
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3. Special 30% deduction on Rental Income also to HUF.

BUSINESS INCOME OF HUF

HUF can do business in the name of HUF. Form of Business can be
Proprietorship Concern, Partnership with other person or even in the
form of investment in the shares of other Companies/Mutual Funds. All
the provisions of Business head are equally applicable for HUF also.
Provision of Tax Audit u/s 44AB is also applicable for HUF if the
turnover of Business of HUF exceeds Rs. 1 Crore in any previous year.
Further, HUF can claim the benefit of 44AD if all the conditions are
satisfied.
Whenever HUF enter into any partnership or proprietorship Business
then any member of HUF can be appointed as manager or working
partner on behalf of HUF. In case of partnership firm, Remuneration and
commission received by such member of HUF on account of his personal
qualifications and exertions and not on account of investments of the
family funds in the company cannot be treated as income of HUF
[Subbiah Pillai (K.S.) vs. CIT 103 Taxman 400/237 ITR 11].
CAPITAL GAIN INCOME OF HUF
Provisions of Capital Gain head are equally applicable to HUF. Therefore
any Capital gain arising to HUF, from sale of Capital asset, is taxable
under Capital gain head. All the exemptions are also available to HUF.
Family Settlement or Arrangement: Since the sole purpose of family
settlement should be to settle existing or future dispute regarding
property, amongst the members of HUF. Therefore it is not considered as
transfer under Income Tax Act, 1961 & accordingly capital gain does not
attract on these transactions.
INCOME FROM OTHER SOURCES FOR HUF
Any other incomes accrue or arising to HUF during the previous year is
taxable under the Head Income from Other Sources. For Example,
Bank Interest, Dividend Income, Gifts etc.
GIFT VIS--VIS HUF
Gifts means the transfer by one person to another of any existing
movable or immovable property made voluntarily and without
consideration in money or moneys worth. Thus a gift does not have the
character of income. However, after 1st September, 2004, as per Income
Tax Act, 1961 receiver of gift is charged to taxation u/s 56(2)(vii) under
the head Income from Other Sources. However, receipt of gift by HUF
from its member is not taxable under sec. 56(2)(vii).

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This is only one side of Coin. HUF can make gifts to others also. In
general, any gift by HUF to outsiders is Void. Further, any unreasonable
gift to member is also voidable at the option of other members of HUF.
The gift made by the family of a sole coparcener to the wife of the Karta of
the family is considered to be valid [M.S.P. Rajah Vs CGT (1982) 134 ITR 1
(Mad)]. Gift by HUF to bride of male member in the form of jewellery at the
time of marriage is valid. Obligation of Karta is towards marriage of both
sons & daughters. [CIT Vs A.K. Daga & Sons (2008) 296 ITR 623 (Mad) also see
CGT Vs Basant Kumar Aditya Vikram Birla (1982) 137 ITR 72 (Cal)]

A GIFT OF HUF PROPERTY BY FATHER

Within reasonable limits
As a gift of affection.

[Gift of affection can be made to a wife, daughter & son]

B GIFT TO STRANGER
Gift given to Strangers is void [Guramma v. Mallappa AIR 1964 SC 510].
Karta is not entitled to give any gifts to strangers [Gangadhar Narsiangdas
Agarwal (HUF) Vs CIT (1986) 162 ITR 320 (Bom)].

A coparcener can dispose of his undivided interest in the coparcenary

property by a will, but he cannot make a gift of such interest. It is said to be
void [Thamma Venkata Subbamma Vs Thamma Ratanamma & Ors. (1987)
168 ITR 760 (SC)]

C GIFT TO COPARCENER & MEMBERS

The gift of family property by Karta of an HUF to coparceners or noncoparceners is voidable.
D GIFT TO DAUGHTERS
Hindu father can make a gift of ancestral property within reasonable limits
at the time of marriage or even long after marriage [R. Kuppayee Vs Raja
Gounder (2004) 265 ITR 551 (SC)]
E GIFT TO WIFE BY KARTA
The Karta is empowered to make gifts to his wife within reasonable limit of
the movable assets. But the Karta cannot make gifts to his second wife. It is
invalid [Commissioner of Gift Tax Vs Bansilal Narsidas (2004) 270 ITR 231
(MP)]

F GIFT BY KARTA TO NEPHEW

Gift made by Karta to nephew & interest on the amount gifted was
deposited in the firm. It was held that gift was void.
G GIFT BY KARTA TO MINOR CHILDREN OF FAMILY
Gift made by Karta from
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Natural love & Affection

Within reasonable limits

The gift will be Valid [CWT/CGT Vs Shanmugasundaram (1998) 232 ITR 354
(SC)]

H EXPENSES INCURRED ON MARRIAGE OF A DAUGHTER BY HUF.

Marriage of daughter still remains an obligation of the Family under Hindu
law. Thus, reasonable amount of gift given on her marriage should not
objected by the male coparcener.

DEDUCTIONS UNDER CHAPTER VIA AVAILABLE TO HUF

S.NO SECTION

DEDUCTION
Deduction available to HUF
Insurance Premium can be paid on the
life of any member which does not
exceed 10% of total sum assured for
policies issued on or after 1st Apr,
2012
Mediclaim Policy on the health of any
member of the family.
Deduction for payment on account of
preventive
health
check-ups
not
available.
For maintenance including medical
treatment of a dependant member of
the family.
Medical treatment for any dependant
member of the HUF
Donation to certain funds, charitable
institutions ,etc.

80C

80D

80DD

80DDB

80G

80IA/80IAB/80IB/
New Industrial undertakings
80IC/80ID/80IE/80JJA
COMPUTATION OF TAXABLE INCOME OF HUF

TAXABLE INCOME SHALL BE COMPUTED AS FOLLOWS:

Step 1 - Income under the different heads of income - First find out income
under the five heads of income.
Step 2 -Adjustment of losses of the current year and earlier years - Losses
should be set off according to the provisions of sections 70 to 78. The
income after adjustment of losses is the gross total income.
Step 3 - Deduction from gross total income - Deductions specified under
Chapter VI A should be considered while calculating the gross total
income.

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Step 4 - Rounding off - The balance should be rounded off to the nearest ` 10. It
is called as net income or taxable income or total income.

POINTS TO REMEMBER WHILE COMPUTING TAXABLE INCOME OF HUF

While computing income of a Hindu Undivided Family one should give due
consideration of the following:
(i) Where a member of HUF converts his self acquired property into joint
family, income from such property shall not be treated as income of HUF
u/s 64(2). It shall continue to be taxed in the hands of the transferor who
is the member of the HUF.
(ii) Income from an impartible estate is taxable in the hands of the holder of
the estate and not in the hands of HUF.
(iii) Income from Stridhan of a woman is not taxable in the hands of HUF.
(iv) Personal income of members cannot be treated as income of HUF.
(v) Where the funds of HUF are invested in a company or a firm, fees or
remuneration received by the member as a director or a partner in the
company or a firm may be treated as income of HUF in case the fees and
remuneration is earned essentially as a result of investment funds.
(vi) Where remuneration is paid by HUF to Karta or any other member for
services rendered by him in conducting familys business, the
remuneration is deductible provided the remuneration is paid :
(a) Under a valid bonafide agreement;
(b) In the interest of, and expedient for the family business, and
(c) Genuine and not unreasonable.

COMPUTATION OF TAX LIABILITY OF HUF

CALCULATION OF TAX LIABILITY:
Determine Net Income and tax payable thereon at the slab rate.
ADD:

XX

Surcharge @ 10% if the total income exceeds Rs. 1 crore.

XX

Education cess and secondary and higher secondary education cess

ADD:
DEDUCT: Rebate u/s 86, 90,90A and 91
ADD:

XX
XX

Interest payable (if any)

XX

DEDUCT: Amount of prepaid taxes paid (Advance Tax, Tax Deducted at Source, etc.)
THE BALANCE SO ARRIVED IS THE AMOUNT OF TAX TO

BE PAID.

XX

NOTE:
(i) From the Assessment Year 2013-14, tax payable (i.e. amount arrived at
Step 3) cannot be less than 18.5 percent of Adjusted Total Income in some
Specified Cases.
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XX

(ii) The total amount payable as income tax and surcharge on total income
exceeding `1 crore shall not exceed the total amount payable as income tax
on a total income of `1 crore by more than the amount of income that
exceeds `1 crore.

REDUCING TAX INCIDENCE IN CASE OF HUF

Following methods or devices may prove useful in reducing the tax
incidence in case of HUF:
A PAYMENT OF REMUNERATION TO KARTA &/OR TO OTHER MEMBERS OF
FAMILY:
An Important measure of tax planning for an HUF is to pay
remuneration to the Karta and/or to other members of HUF for
services rendered by them to the HUF Business. The Remuneration
so paid shall be allowed as deduction from the income of HUF and
thereby tax liability of HUF would be reduced. However one should
keep in mind that, remuneration should be reasonable and its
payment should be bonafide. Further, such remuneration should be
under a Valid Agreement between HUF and recipient of
Remuneration.
Therefore, a proper planning can be done using this technique to
minimize overall tax liability.
B THROUGH FAMILY SETTLEMENT/ARRANGEMENTS
Family settlements/arrangements are also effective devices for the
distribution of ancestral property. Object of family settlement should
be broadly to settle the existing or future dispute regarding joint
property. Family settlement does not involve transfer of asset under
Income Tax Act, 1961, therefore there would be no gift and capital
gain tax liability or clubbing u/s 64.
By using Family settlement, tax incidence can be considerably
reduced or it may even be NIL. Suppose a Family consists of Karta,
his wife, two sons and their wives & children and its income is Rs.
6,00,000/-. The tax burden on the family will be quite heavy. If by
family settlement income yielding property is settled on the Karta, his
wife, his two sons and two daughter-in-law, then the income of each
one of them would be Rs. 1,00,000/- which would attract no tax.
Hence tax liability has been reduced to NIL.
C BY LOAN TO MEMBERS FROM THE HUF
If the business capital or investment of HUF is expanding, then such
expansion can be done in the individual names of the members of

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HUF by giving loans to the members of HUF. The HUF may or may
not charge interest on loans given to members.
When such money is invested by such member then any income from
the use of such money would be assessable in the hands of such
member & not in the hands of HUF.
D BY GIFT OF MOVABLE/IMMOVABLE ASSETS OF THE HUF TO ITS FEMALE
MEMBERS
If HUF have excess funds, then, any income generating property of
HUF can be gifted to any Non-earning Female member of HUF. Gift of
immovable property upto a reasonable level can be made by Karta of
HUF to any Female member in the family out of natural love &
affection.
E OTHER METHODS/DEVICES
There are some other methods/ devices which may be used to
reduced the incidence of Taxation:
1. Vesting of individual or self-acquired property in a family
hotchpots;
2. Family reunion after partition;
3. Through inheritance by succession
TAXABILITY OF INCOME RECEIVED BY MEMBERS FROM ITS HUF
As per Section 10(2) of the Income-tax Act, 1961, any sum received by an
individual from Hindu Undivided Family of which he is member is
exempt from tax. In simple words, any share of profits of HUF will not be
taxable in the hands of members because HUF has already paid taxes on
such income. But the amount received not as a member of Joint Family
but in pursuance of some statutory provision, etc. would not be
exempted in this section. Also the position of member of joint family in
law to claim the right u/s 10(2) does not get affected only with the reason
that they are living apart from the other members of the family.
Please Note that, any remuneration, commission or any other receipt of
income by the member of HUF from HUF, for which deduction is allowed
to HUF, will be taxable in the hands of Member.
WHETHER TAX LIABILITY OF AN INDIVIDUAL MEMBER OF THE
RECOVERED IN FULL EXTENT FROM THE HUF?

HUF CAN BE

Demand against member of HUF can be recovered from HUF to the

extent of its share in property of HUF. [Naresh B. Chheda v. JCIT [2011] 9
taxmann.com 86 (Bom.)]

PROVISIONS RELATED TO STOCK MARKET, MUTUAL FUNDS & HUFS

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1. HUF can have a separate Demat Account.

2. Make money by investing in shares of companies:A Primary Market
B Secondary Market
3. Enjoy Tax Free Income for Long-term Capital Gains by holding shares for
more than one year.
4. Enjoy lower tax rate of 15% on Short-term Capital Gains u/s 111A.
5. HUF can also invest in Mutual Fund.

CONCLUDING REMARK
HUF is a good tax saving tool as it is regarded as a separate legal entity
under the tax law and also assessed to tax separately as a distinct legal
person. This implies that a person can file two income tax returns, one in
his personal individual capacity and one in the name of his HUF. This
gives the benefits of dividing his taxable income between two entities and
hence, he can claim double deductions and expenses in both capacities,
thereby reducing his total taxable income and tax liability substantially.
Any income earned by an individual in his capacity as member of HUF is
not taxable in his individual capacity as it is already taxed in the hands
of the HUF. Joint assets or properties under inheritance for the entire
family can be gifted to the HUF instead of gifting to individual members
of the family. This can result in tax savings as there is no gift tax or
inheritance tax and clubbing of income provisions will also not apply.
Similarly, a Karta of a HUF can give, by way of gifts, certain amounts or
assets out of HUF properties, to its members over a period of time to
gradually build assets in their names.
Readers are requested to send their feedback & Suggestions on this article to
share their experience & improvement in Future. You may reach author
@caabhi13@gmail.com or call on +919001686968.

FORMAT OF HUF CREATION DEED

FORMAT-I
DECLARATION
I,
________________
son
of
__________________,
Residing
at
______________________ aged ___ Adult do hereby declare1. That I am Karta of ___________________________________________.
2. That I received on behalf of the H U F gift of Rs. ___________ by way of
CASH/CHEAUE from my FATHER ___________________________(name of
relative of karta of HUF) on dt. _______________. This formed the corpus
of the HUF.
3. That the HUF at present is consisting of the followings membersI) Shri ______________________, Adult, Residing at _________________
II) Smt. _____________________, Adult, Residing at _________________
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III) Kumari _________________, Minor, Residing at ___________________

4. That the above statements are true to the best of my knowledge & belief.
Declare this on _________________
WITNESS: Signature
1. (_____________________)
2. (_____________________)

FORMAT- II
[TO BE EXECUTED ON RS. 100 STAMP PAPER]
DECLARATION OF GIFT MADE BY ________________________ TO THE HINDU
UNDIVIDED FAMILY OF ___________________ I, _____________________________,
residing at _______________, do hereby declare and affirm as under:
1. That out of natural love and affection borne by me towards the Hindu
Undivided Family of _____________, I have made a gift of Rs.______
(Rupees _________________ only) as per the following details: By Cheque
No.________, dated __________, drawn on Bank ____________________,
________________ Branch, in favour of ______________________HUF.
2. The above Gift has been duly accepted by ________________________, as
Karta of his Hindu Undivided Family and has been duly acknowledged
hereunder.
3. This Declaration of Gift is made to record the fact that I have made this
Gift in favour of the Donee as above, who now has the absolute right,
title and interest in the gifted amount. Date: ___________, 200__
___________________ (Signature of the Donor)

ACKNOWLEDGEMENT OF GIFT
I, ________________________, hereby acknowledge having received the
above
gift
made
to
my
Hindu
Undivided
Family
by
_________________________. Date: ___________, 200__
___________________ (Signature of the Donee)

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