FEW QUESTIONS ANSWERED ON HUF

FEW QUESTIONS ANSWERED ON HINDU UNDIVIDED FAMILY (HUF)

1. What is Hindu Undivided Family?

Hindu joint family derives its roots from Hindu law, whereas the HUF is created for the purpose of taxation. The creation of the joint family is automatic and continuous whereas HUF requires to be explicitly created.

One should be Hindu, -there should be family, -they should be undivided. All these three essentials are cumulative to fulfil conditions of an HUF. Coming to the structure of HUF, Karta manages the affairs of the undivided family, who is usually the eldest living male member of the family. He has maximum power and obligations towards the welfare of the joint family.

The daughter, on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband’s HUF. However, after 1-9-2005, Hindu Succession (Amendment Act) 2005, daughter married or unmarried, is a coparcener like a son.

The Mitakshara and Dayabhaga systems are the two schools of law that governs the Hindu Undivided Family in India. The Mitakshara School is observed throughout India except Bengal and Assam, which follows Dayabhaga system. The difference between two schools with respect to the property is, in Mitakshara ownership of property vests in the family and not with any member of the family, whereas under Dayabhaga system ownership of property vests with the father and not with any member of the family.

2. Who can be Co-parceners/members of a HUF? Birth of a male in a Hindu joint family makes him a Co-parcener of the HUF. Female child remains a member till marriage. Only male can be a coparcener. This is changed now after the amendment to Hindu Succession Act 1-9-2005 daughters are coparceners like sons

3. What is the difference between a co-parcener and a member?

Coparceners are only those males (now daughters also) who are within 4 degrees in lineal descendent from the common male ancestor. The relevance of concept of coparcenary is that only coparceners can ask for partition. The other male family members : i.e other than coparceners in a HUF, have no direct claim over HUF property, but can claim only through the coparceners.

4. How does a HUF come into existence?

If there is family nucleus, there need not be more than one male member to form a Hindu undivided family as a taxable entity under the Income Tax Act. HUF deed gives clear insight into the working of HUF like the initial capital invested into HUF, members of HUF, Karta details, nature of assets held by HUF, business carried out by them etc. HUF cannot be created for the first time by a gift from a stranger. However, gift can be made by a stranger if HUF already exists.

5. Can a son being a member of HUF consisting of his father, himself and his brothers, form and HUF consisting of himself, his wife and minor son?

Under Hindu law, there can be a HUF within a HUF. Therefore, a son can have his own smaller HUF while he continues to be a member of his father’s HUF. In his father’s HUF, he is a mere member - coparcener and in his own HUF, he is Karta.

6. What is H.U.F and Individual property of a Hindu?

Any property which is received from ancestors by way of partition or otherwise is HUF property. Any property received by the HUF by way of gift through Will, accretions to the existing properties, blended or properties thrown in common hotchpot or impressed with the Character of HUF property by any coparcener etc. are also HUF property.

7. Whether property acquired on gift by the assessee with an intention of the donor that the money should be used for the benefit of his family is HUF property or not?

HUF can receive gifts from anybody including a stranger. In any case, as held by the Supreme Court, (Ref CIT vs. Satyendra Kumar (1998) 232 ITR 360(SC) a gift by mother also can be a source of HUF property. In case of a gift whether from a father, mother, relative or a friend the intention of the donor is important. If there are express provisions to the effect in the deed of gift or will that the son would take the property for the benefit of the family, that is decisive. It is necessary to take care while making the Will or the gift. Clause should be specific and the donee HUF should open bank account in the name of the HUF. Indication should be clear.

8. What are the taxation provisions on gifts to and from HUF?

Under the clubbing provisions of the Income Tax Act, the income arising from member to HUF converted property will be deemed to be income of the transferor individual. Amount received out of HUF income, or in case of impartible estate, amount received out of income of family estate by any member of such HUF, it is exempt from tax.

When an individual, being a member of HUF, transfers his property to HUF otherwise than for adequate consideration or converts his property into the property belonging to HUF (it is done by impressing such property with the character of joint family property or throwing such property into the common stock of the family), then clubbing provisions will apply as follows: 

before partition of HUF, entire income from such property will be clubbed with the income of transferor.

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After partition of HUF, such property is distributed amongst the members of the family. In such a case income derived from such property by the spouse of the transferor will be clubbed with the income of the individual and will be charged to tax in his hands.

Where HUF receives from any person after 01/10/2009, without any consideration then it will be treated as “Income from Other Sources” a. Any amount exceeding Rs. 50000, the whole of such amount. b. Any immovable property, the stamp duty value of which exceeds Rs. 50,000/-, the stamp duty value of such property. c. Any property, the FMV of which exceeds Rs. 50,000/-, the whole of FMV of such property. d. Or for a consideration which is less than FMV of such property by an amount exceeding Rs. 50,000/-, the aggregate FMV of such property as exceeding such consideration.

However, provision of section 56(2)(vii) of the IT Act, shall not apply to any sum of money or any property received by HUF a. From any relative b. On the occasion of the marriage of the Individual. c. Under a will or by way of inheritance; or d. In contemplation of death of the payer or donor, as the case may be, or e. From any local authority as defined in explanation to clause (20) of Section 10; or f. From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10.

However, any individual receiving gift from HUF, is fully taxable.

Compiled by CA. Kalyan Chakravarthy Vennety

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