PRESENTATION ON

HINDU UNDIVIDED FAMILY

ORGANISED BY
CA BRANCH DEHRADUN
ON
DECEMBER 19, 2014
AT
DEHRADUN ICAI BRANCH

Presented by:
CA Verendra Kalra
 THE HINDU LAW
• Acts Codified
o Hindu law is basically derived from Srutis, Smritis, and
customs. In post independent India, the following Acts
have codified some of these aspects of the Hindu Law:
 Hindu Marriage Act, 1955
 Hindu Succession Act, 1956 [ significantly amended by The
Hindu Succession (Amendment) Act, 2005]
 Hindu Minority and Guardianship Act, 1956
 Hindu Adoptions and Maintenance Act, 1956
 The Hindu Women’s Rights to Property Act, 1937

HINDU UNDIVIDED FAMILY 2

 AN HUF
• The Meaning
o A joint Hindu family is a group of relatives tied together by
ties of kinship & marriage and descended from a common
ancestor.
o HUF is automatically constituted on marriage
o It includes children, children's children down the line,
spouses. HUF is formed by the status of person in a family
and not through any contract

o Persons belonging to Jain, Sikh and Buddhist community

can also constitute an HUF
HINDU UNDIVIDED FAMILY 3
 SCHOOL OF THOUGHT
• Mitakshara School
o The Mitakshara School exists throughout India except in the
State of Bengal and Assam.
o Mitakshara is applicable wherever Dayabhaga is silent.
o The Inheritance is based on the principle of propinquity i.e.
the nearest in blood relationship will get the property.
o ‘Sa-pinda’ relationship is of blood. The right to Hindu joint
family property is by birth. So, a son immediately after birth
gets a right to the property.
• Dayabhaga School
o It exists in Bengal and Assam only.
o Not being discussed being of lesser relevance.

HINDU UNDIVIDED FAMILY 4

 SCHOOL OF THOUGHT
• Mitakshara School
o The system of devolution of property is by survivorship ( subject to
amendments in 2005 in Hindu Succession Act).
o The share of coparcener in the joint family property is not definite
or ascertainable, as their shares are fluctuating with births and
deaths of the coparceners.
o Coparcener has no absolute right to transfer his share in the family
property, as his share is not definite.

HINDU UNDIVIDED FAMILY 5

 CORPUS OF AN HUF
• Corpus Formation of an HUF

o Once a member of an HUF receives any ancestral property from

any ancestor three generations above him, an HUF’s corpus is
automatically created.
o Another way to form the corpus of an HUF is by receiving an asset
or property by way of gift from a lineal ascendant/outsider with a
specific instruction by the donor that the same is being gifted to
the HUF.
o Existence of nucleus or joint family property is not necessary to
recognize the claim of status of an HUF. This may have relevance
only from Income Tax point of view.
o It has been established that since the HUF is a creature of Hindu
Law, it can exist even without any nucleus or ancestral joint family
property.

HINDU UNDIVIDED FAMILY 6

 KARTA
• Who is a Karta
o A joint family is headed by a Karta who is normally the
eldest living male member of the family
o He is the head of the Joint family
o He acts on behalf of the joint family.
o Karta has some peculiar rights and obligations under
traditional Hindu Law, he has the power and duty of
superintendence of how the joint family is run
o The position of the Karta is "Sui generis". Sui generis in the
sense that his position is not that of the Manager of a
Commercial Firm and his relationship with the other
members is not that of the Principal and Agent or Firm and
Partners.

HINDU UNDIVIDED FAMILY 7

 KARTA
• Who can be a Karta
o If Karta passes away, the next heir in line can be Karta
o Wife cannot become the Karta until there is a surviving son
in the family. In case all the sons are minors, then the wife
can be a Karta in a representative and Guardian Capacity.
o After amendment in the Hindu Succession Act, daughter of a
coparcener has equal right as of a son. Therefore, daughter
being coparcener and can also be a “Karta”.
o A minor male(coparcener) may also act as a Karta through his
legal guardian till he becomes a major.
o The right to be a Karta can be given up his right and the next
son or daughter in line can take his place.
o The Karta can function in dual capacity and can claim
remuneration and other benefits as Manager from the HUF
HINDU UNDIVIDED FAMILY 8
 KARTA
• The Power of Alienation
o "Alienation" means "Transfer of Property from one person
to another by way of a Sale, Gift, Lease or Mortgage.
o The Karta can alienate the joint family property with or
without the consent of the other coparceners. No consent
is required in the following cases:
 For the Purpose of Legal Necessity
 For the benefit of the Estate and
 For the performance of Indispensable Religious Duties
o However such an alienation can be challenged by the
continuing coparceners as not being for legal necessity or
benefit of estate within 12 years of knowledge of transfer.

HINDU UNDIVIDED FAMILY 9

 KARTA
• Other Powers
o Managing the affairs of HUF
o Control and become custodian of finances
o Can borrow money for & on behalf of HUF
o Spend money for the family & not accountable for it.
o Not liable to submit account to anyone.
o Can make partition of the family suo moto.
o He can enter into contracts on behalf of HUF and may
allow others to represent HUF
o Can Gift away the movable properties of HUF for natural
love & affection but within reasonable limit.
o Can transfer the immoveable property for pious purposes
or the legal necessity or for benefit of the family.

HINDU UNDIVIDED FAMILY 10

 KARTA
• Spending Powers
o The Karta has no special interest therein.
o The right of a son or nephew in the income is not a right to
an exact fraction of the income.
o The Karta may well spend more on a son whose family is
large or who has special aptitude or necessity.
[CIT v. Devan Krishna Kishore 9 ITR 695 (PC)]

HINDU UNDIVIDED FAMILY 11

 COPARCENERS
• Coparceners
o Within the joint family there is a narrower body called the
Coparcenary.
o Coparcenary is restricted to four levels of living order, i.e.
consisting of four successive generations including the last male
holder of the property.
o This includes the eldest male member + 3 generations.
o This special group of people are called coparceners and have a
definitive right in ancestral property right since the moment of
their conception.
o Hindu coparcenaries includes the sons-daughters, grandsons-
granddaughters and great-grandsons-great grand daughters of
the holder of the joint family property. By virtue of their birth,
they acquire an interest in the property.

HINDU UNDIVIDED FAMILY 12

 CONCEPT OF COPARCENERS
• As long as A is alive, Coparcenary
consists of A, B1, B2, B3, C1, C2,
C3, C4, D1, D2, D3, D4. The
descendents in the fifth degree
E1, E2, E3 and E4 are members
but not coparceners in the HUF
• On A’s Death, the Coparcenary
will then include E1, E2, E3 and
E4, now being in the fourth
degree of descent from the
Senior Coparcener
• Even if B1, B2 or B3 in the
second degree, predecease A,
E1, E2 and E3 do not become
coparceners, as they still
constitute the Fifth Degree in
lineage.
HINDU UNDIVIDED FAMILY 13
FOUR DEGREES OF COPARCENERS
• As observed in the Concept of Coparceners in the previous
slide, on death of the common male ancestor, males of
another generation will be added to the Coparcenary i.e. the
Coparcenary after his death will consist of his sons, his
grandsons and his great grandsons.
• After the death of the common ancestor, the Coparcenary
may consist of collateral brothers and their progeny in the
male line up to descendants of the fourth degree including
the brothers.
• Coparcenary is not restricted to four degrees from the
Common ancestor but to four degrees from the living holder
of the HUF Property, i.e. the senior most living coparcener of
the family.

HINDU UNDIVIDED FAMILY 14

 BIG & SMALL HUFs
• The HUF consisting of all the
persons in the Chart alongside
namely, the coparceners A, B1,
B2, B3, C1, C2, C3, C4, D1, D2,
D3, D4 and the members E1, E2,
E3 and E4 constitutes the bigger
HUF.
• A smaller HUF would consist of
B, C1, C2, D1, D2, E1 and E2.
• Gift of property from Bigger HUF
to Smaller HUF is feasible and
will form property of smaller
HUF and only distribution of
property thus takes place and
not partition. Section 64(2) is
not applicable in this case.

HINDU UNDIVIDED FAMILY 15

 MEMBERS v. COPARCENERS
• Who can be Coparcener
o The system of Coparcenary is a narrower institution
o This group of persons, unlike the joint family, is related to
each other only by blood or through a valid adoption.
o While there may be many members of an HUF, only a few
of the members may be Coparceners of the HUF.
o All coparceners are members of HUF, all members are not
coparceners. The following persons cannot be
coparceners:
 The Husband’s wife
 Father’s wife and lineal descendant’s wives
 Illegitimate sons and daughters
 An insane member of the family
 Member who renounces his religion
 A minor coparcener, if given
HINDU in adoption
UNDIVIDED FAMILY 16
 DAUGHTERS AS COPARCENERS
On 9th September 2005, the Hindu Succession Act, 1956 was
amended to provide that a daughter too could be a coparcener
i.e. joint heir, like her brother to the joint family's assets and
she too could enforce the partition of the family property to
claim her individual share. She continues to be the coparcener
in her father's HUF even after she gets married and forms
another HUF with her husband. Now,
o Daughter of a coparcener shall by birth become
coparcener in her own right in the same manner as son.
o Daughter has the same rights in the coparcener property
as she would have had if she had been a son.
o Daughter is allotted the same share as to the son.
o Married women have rights in two HUFs-their father's as
coparcener and their husband's as member.

HINDU UNDIVIDED FAMILY 17

 INTEREST OF COPARCENERS
• Extent & Transferability of Interest of Coparceners
o A Coparcener has a right over the property of the family in
the case of Partition of the HUF
o A coparcener's interest is not fixed & it fluctuates by birth
and deaths in the family
o A coparcener can sell or gift away his interest to another
coparcener or even a third party, without the consent of
other coparceners.
o A third parties’ right to take possession of property along
with rest of Coparcenary is limited. The family can buy the
third party out in order to maintain integrity of the house
and to prevent a stranger from getting in with the family.
This right is given by Transfer of Property Act as well as the
Partition Act.
HINDU UNDIVIDED FAMILY 18
 RIGHTS OF COPARCENERS
• Extensive Rights to Coparceners
o Any coparcener can at anytime seek a partition of his
share.
o The continuing coparceners can seek to buy out the share
of coparcener expressing his intention to move out by
exercising the right of ‘pre-emption’.

HINDU UNDIVIDED FAMILY 19

 LIABILITY OF COPARCENERS
• Privileges not without liability
o It is generally presumed that money required for carrying
on family business is a family necessity and that the
business is carried on with the consent or acquiescence of
all the members of the family.
o Thus, if debts are incurred by the Manager in the ordinary
course of the family business, all the Coparceners become
liable. However, their liability is limited to the extent of
their interest in the family property and not beyond that.
o In case of an act contrary to the interest of the HUF is done
by the Karta, the adult coparceners become personally
liable if they themselves are actually contracting parties
along with the Karta, or if they ratify the contract entered
into by the Karta
HINDU UNDIVIDED FAMILY 20
 MINOR AS COPARCENERS
• Can a Minor be a Coparcener?
o Yes, a minor can be a Coparcener.
o The moment a male child takes birth in the joint Hindu
family, he gets the birth right in the Coparcenary property.
o Hindu law makes no sort of distinction between major and
minor coparceners in respect of their rights in the joint
family estate – However, the same is a debatable issue in
view of the demerits of a Minor Coparcener discussed later
o A minor coparcener is not a major coparcener until he
attains the age of 18 years.
o A minor coparcener, who does not become personally
liable for any debt or contract unless the same is ratified
by him after attaining majority

HINDU UNDIVIDED FAMILY 21

 MINOR AS COPARCENERS
• Minor Coparcener-Demerits
o Whereas a major coparcener can effect a severance or
partition at his will, the minor coparcener cannot of his own
will cause himself to be separated nor can he authorize
anyone on his behalf to separate him.
o He can institute a suit for partition through a next friend in a
court of law. The court will take cognizance of the situation
and would enforce partition only when it is satisfied that the
partition would be beneficial to or promote the interests of
the minor.
o A minor after becoming of age can reopen the partition if he
can prove that the partition was not for his benefit or it was
unfair with regard to him.

HINDU UNDIVIDED FAMILY 22

 MEMBERS
• Rights of Members
o The wife of a coparcener cannot force a claim for partition.
o The members of the HUF which include male and female
members, daughters and children of the male members are
entitled to maintenance.
o Maintenance includes food, shelter, clothing, education,
medical aid and marriage.
o A members of the HUF is entitled to own and possess his
separate property besides his interest in the HUF property.
o The widow and children of a deceased coparcener have the
right to be maintained out of the HUF property.

HINDU UNDIVIDED FAMILY 23

 ANCESTRAL PROPERTY
• As per Hindu law, ancestral property means property
acquired by forefathers. Therefore, any property which is
received by the coparcener on partition is always considered
as ancestral property.
• However, it is to be noted that if the coparcener is unmarried
on the date of partition then income from such property
would be assessed in his hands in individual capacity till he
gets married, reason being that single person cannot
constitute family. Till he gets married, he is the absolute
owner and can dispose it in any manner he likes. Therefore,
in the absence of family, the income from such property is
liable to be assessed in individual capacity.
(C Krishna Prasad-CIT 97 ITR 343 SC.)

HINDU UNDIVIDED FAMILY 24

 COPARCENARY PROPERTY
Coparcenary property is wider than the expression ‘ancestral
Property’. It would include the following:
•Ancestral property i.e. the property inherited from father,
grandfather or great grandfather; share allotted on partition;
•Property acquired by the coparceners with joint efforts. In Madanlal
v. Yogabai AIR 2003 SC 1880, it has been held that property raised
and developed by joint efforts of father and sons would be joint
family property;
•Property acquired with the aid of or on account of coparcenary
property.
•Property of the coparcener thrown into common hotchpots of
family funds.
•The property received by HUF having ancestral property as gift or
under a will. Intention of the donor is relevant while considering the
character of the gifted property.
(M.P.Periakaruppan Chettiar-vs-CIT 99 ITR 1 SC.)
HINDU UNDIVIDED FAMILY 25
 HUF PROPERTY
Whether property inherited from father can be treated as
HUF property?
•As per the old Hindu law, the property inherited by a
coparcener was considered as ancestral property.
•But after the amendment in 2005 in Hindu Succession Act, the
property of father devolves by testamentary or intestate
succession and not by survivorship. The father has absolute
right over the property acquired by him on account of personal
efforts or through borrowed funds. He can dispose of such
property as he wishes. Hence, property inherited from father
cannot be treated as ancestral property.
[CWT-vs-Chander Sen 161 ITR 370 SC)]

HINDU UNDIVIDED FAMILY 26

 PRPERTY INHERITED BY SON
• The son inherits the individual property of his father as an
individual under the Hindu Succession Act and not in the status of
HUF
• Property devolving under section 8 of the Hindu Succession Act on
the legal heirs should be treated as individual property and the
income arising from the said property should be assessed in the
status of an individual.
[CIT v. A.P.S. Parameshwaran Pillai(2000) 241 ITR 748 (Mad)]
• In Prabhashchandra Jha v. CWT (2007) 291 ITR 335 (MP) it was
held that since the property inherited by the assessee as an
individual from his individual father was not thrown into the
common stock of the family before 31-12-1969, it was taxable as a
separate property and not as property of the HUF.

HINDU UNDIVIDED FAMILY 27

 SURVIVORSHIP
• Post the recent amendment in Hindu succession Act in 2005,
Under Section 6(3) and Explanation to section 6(3) on the death of
a Hindu his interest in family property shall devolve by succession
and not by survivorship.
• The succession can be testamentary (by will) or intestate (without
a will)
• Therefore the coparcener may make a will bequeathing his interest
in the HUF property to any person, a coparcener or a member.
• If he does not leave a will, the intestate succession will be as per
the rules of succession as laid does in section 8 for males and
general rules of succession under section 15 for females
• The Interest of a deceased which was there in the original
explanation to Section 6 provides that shares would be allocated
as if a notional partition had taken place before his death.
• This would apply also to the death of a coparcener like wife who
was not entitled to claim partition in her own right.
HINDU UNDIVIDED FAMILY 28
 HUF PROPERTY
• The expression Joint family/HUF property is still wider–A property
may not be either ancestral or Coparcenary property yet may be
considered as HUF property in certain cases.
• There may be a family with a single male member without having
ancestral/Coparcenary property. Such family may receive gift from
relatives or friends of members of family.
• Further, the single male member of such family may blend his self
acquired property into joint family property. Such property would
neither be ancestral nor Coparcenary property but certainly be
HUF property.
• To buttress this view, reference may be made to the decision of
the apex court in the case of Surjit Lal Chhabra 101 ITR 776 SC.
However, in such case, it was held that income from such property
would be assessable as personal income of the male person till the
birth of a son.

HINDU UNDIVIDED FAMILY 29

 CREATION OF PROPERTY
How an HUF can create property?
•Properties of HUF can be acquired by joint labour.
•Vesting of self acquired property in family hotchpotch can create
family nucleus. Clubbing provision u/s 64(2) to be noted.
•A newly created HUF as a unit may receive gifts from outsiders or
from father or brother or sister of the karta who are not members of
the donee HUF. All such gifts will result in accretion to the family fund
without attracting the provisions of Section 64(2).
•A father can gift his self acquired property to his sons’s newly
created HUF. It is essential that the gift deed should specifically
mention the gift to the HUF & not to individual son.
•HUF through will: A new family nucleus can also be created by a will
but the intention of the bequest being for the family has to be made
absolutely clear in the will.

HINDU UNDIVIDED FAMILY 30

 CONSTITUENTS OF AN HUF
• Can Single Unmarried Person form an HUF?
o No, a single unmarried person cannot constitute an HUF

• Can there be an all-Female HUF?

o Yes, in view of the decided case laws, an all-female HUF
has been given due recognition in the eyes of the law.

• Can a female be a Karta?

o Yes, after amendment in the Hindu Succession Act,
daughter of a coparcener has equal right as of a son.
Therefore, daughter being coparcener and can also be a
“Karta”.

HINDU UNDIVIDED FAMILY 31

 CONSTITUENTS OF AN HUF
Son is not necessary to constitute HUF under Mitakshara law
- Gowali Buddanna v. CIT (1966) 60 ITR 293 (SC).
HUF can be formed with one husband and wife only
- Prem Kumar v. CIT 121 ITR 347 (Allahabad H.C.).
Remuneration to Karta of HUF can be followed
- J. K. Baldeo Sahai v. CIT 63 ITR 238 (SC).

The term HUF is much wider than Hindu Coparcenary. The

Direct Tax Laws deal with the HUF and not with the Hindu
Coparcenary. It is not correct to say that no female can be a
member of HUF and an HUF does not necessarily consist of
only male members
- Kalyani Vithaldas v. CIT 5 ITR 90 (PC)

HINDU UNDIVIDED FAMILY 32

 HUF BY A WIDOW
Can the widow succeed to estate of husband?
A Hindu widow by virtue of section 14 of the Hindu Succession
Act, 1956 may become a fresh stock of descent, but as she has
become full owner of her husband's properties, her children, if
any, by her first husband, her adopted son if she cares to adopt
and her children if she gets married again, will all be her heirs
an in that sense, she and her children may form one joint
family but non of them can have any right by birth in her
property, and hence the Hindu joint family as ordinarily
understood in Hindu Law cannot be brought into existence.
[Rukmani Bai Rathor v. CWT 54 itr 430]

HINDU UNDIVIDED FAMILY 33

 HUF BY A WIDOW
Can HUF continue by adoption by a widow?
Held, yes.
“The facts in the present case is brought out earlier go to show
that the Karta had died leaving his widow and she had adopted
the assessee and by virtue of the adoption by a Hindu, the
adopted son is treated as adopted by the deceased father too
and thereby he acquires the Coparcenary rights in the HUF
property as if it existed all the time. The fact that at the time of
adoption the spouse of the widow was not alive in accordance
with the above decisions does not alter his rights as a
coparcener”
[ITO v. R.N. Dalichand Jain 2002 80 ITR 474 Bang]

HINDU UNDIVIDED FAMILY 34

 BUSINESS ASPECTS
• Interest paid by HUF to Coparceners
o The ruling came from the Hon’ble Supreme Court of India in
the case of CIT v. Venugopal Inani (1999) wherein the
Interest paid on amounts lent by them to the HUF was held
not deductible as a business expenditure u/s 37(1)

• Income earned with aid of HUF funds

o The same is assessable in the hands of the HUF when funds
of family have been invested in business

HINDU UNDIVIDED FAMILY 35

 BUSINESS ASPECTS
• Loan from HUF
o Taking a loan from an HUF for personal use does not amount
to use of family funds.
o The income from utilization of such loan funds is assessable
in the hands of the Individual Member of the HUF
• Can there be a Partnership between the Karta and the Karta
as representative of the HUF?
o As a settled law, there cannot be a partnership between a
coparcener as individual and the same coparcener in
representative capacity for the HUF
o If there is at least one more partner, then in the partnership
the same person can represent the HUF and also himself as
the individual

HINDU UNDIVIDED FAMILY 36

 BUSINESS ASPECTS
• HUF as Partner of Firm
o Under sec. 2(31) of the IT Act, 1961, a HUF is a ‘person’ for
the purpose of the Income-tax Act
o However, a HUF is not a juristic person for all purposes (viz.,
for the purposes of other laws) including the partnership law.
o Accordingly, under the Indian Partnership Act, 1932, a HUF is
not a juristic person and it cannot enter into a valid
partnership with any other person.
o The Karta of the HUF may enter into partnership with
outsiders on behalf and for the benefit of his joint family.
o It is competent to the manager or Karta acting on behalf of
the HUF to enter into a valid partnership with a stranger or
with the Karta of another family

HINDU UNDIVIDED FAMILY 37

RESIDENTIAL STATUS OF AN
HUF

If A & B
Satisfied- OR
If none
satisfied - NOR
HINDU UNDIVIDED FAMILY 38
 TAX BENEFITS OF AN HUF
TAX SAVINGS – A DEMONSTRATION
Income Divided with HUF Taxed as
Individual
Individual HUF Individual
Gross Total Income 8,00,000 8,00,000 16,00,000
Less Deductions : 80C 1,00,000 1,00,000 1,00,000
Less Deductions : 80TTA 10,000 10,000 10,000
Taxable Income 6,90,000 6,90,000 14,90,000
Basic Exemption 2,00,000 2,00,000 2,00,000
Rebate u/s 87A 2,000 - 2,000
Tax Payable 67,980 70,040 2,85,310

By setting up an HUF an individual can divide his taxable income between two
separate income tax entities, this decreases his net taxable income as HUF gets 80C,
80CCF, 80D deduction separately and the basic exemption and cuts his annual tax
payment by Rs. 1,47,290/-

HINDU UNDIVIDED FAMILY 39

 ASPECTS OF TAXATION
• Remuneration paid to Karta
o The admissibility or otherwise of the remuneration paid to
the Karta/member of the family for running the affairs of the
HUF depends on the facts of the case.
o The amount paid would be a justified deduction if it is for
specific services rendered
o It should be bona fide and in the interest of the business of
the family. Further, the payment should be genuine.
o The courts have held that before a Karta is paid
remuneration, there should be a valid agreement.
o It is to be noted, that where salary is allowed as a deduction
in the hands of the HUF, it would become individual income
of the Karta. Recourse to section 10(2) is unavailable in this
regard.
HINDU UNDIVIDED FAMILY 40
 ASPECTS OF TAXATION
• However, the income of a joint Hindu family can be assessed
as the income of a HUF, only if the following two conditions
are satisfied:
o There should be a Coparcenary.
o There should be joint family ancestral property.

• Five basic heads of income -Salary, House Property, Capital

Gains, Profit from business, and Income from other
sources. Except for salary, HUF can earn from all of these
sources.

HINDU UNDIVIDED FAMILY 41

 TAX BENEFITS OF AN HUF
ASPECTS OF TAXATION
•A Karta can file three Types of Returns
o In his individual capacity;
o In the capacity of Karta of the HUF which had come into
existence after partition of his father’s HUF.
o In the capacity of Karta of his own HUF.
•Though the HUF is taxed as separate entity, the tax slab which
is applicable to an individual is applicable here too.
•Provisions of section 56(2)(vi) applicable even to HUF if any
sum of money is received by the HUF exceeding Rs. 50,000 p.a.
from non members.
•Items received in kind subjected to the provisions of sec. 56(2)
(vi).

HINDU UNDIVIDED FAMILY 42

 TAX BENEFITS OF AN HUF
STOCK MARKET AND MUTUAL FUNDS
•HUF can have a separate Demat Account.
•It can invest in the shares of the Companies in:-
(a) The Primary Market
(b) The Secondary Market
•Enjoy Tax Free Income for Long-term Capital Gains by holding
shares for more than one year (STT Paid).
•HUF has 2 benefits in investing in IPOs’ i.e. the 2 lakhs limit for
the investment to be categorized as retail is not breached and
there is a greater probability of more shares being allotted.
•Enjoy lower tax rate of 15% on Short-term Capital Gains(STT
Paid).

HINDU UNDIVIDED FAMILY 43

 TAX BENEFITS OF AN HUF
TAX STRATEGIES
•Distribution of Income to Coparceners :
Karta can gift money to the coparceners from the income
earned by the HUF. This income is tax-free in the hands of the
coparceners u/s 10(2). This way, person with a high income will
be able to get tax-free income.
•Funding for Loans :
HUF can give loans to the Karta or coparceners for setting up
business & can charge interest on the loan. Interest paid on any
business loan is fully deductible.

HINDU UNDIVIDED FAMILY 44

 TAX BENEFITS OF AN HUF
TAX STRATEGIES
•Helps in tax planning for service tax :
If business turnover is split by setting up HUF, the service
provider can avoid the hassle of charging service tax and
become small scale service provider.

•Salary to Karta is deductible :

This salary is taxed as income in hands of the Karta and will
be fully deductible from the HUF income.

•Use of income from HUF for expenses :

The income earned by the HUF can be used for the household
expenses of the family.

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 INCOMES EXEMPT
• Section 10(2) – Sums received by members exempt
o This section provides that no liability to Income Tax shall
be attracted or imposed on any member of an HUF in
respect of any sum received by him as member and paid
out of the income of the family.
10. In computing the total income of a previous year of any person, any
income falling within any of the…..
following clauses shall not be included—
(1)…..
(2)any sum received by an individual as a member of a Hindu undivided
family, where such sum has been paid out of the income of the family, or,
in the case of any impartible estate, where such sum has been paid out of
the income of the estate belonging to the family;

HINDU UNDIVIDED FAMILY 46

 GIFT TO AN HUF BY MEMBER
• The provisions of Section 56 of the Income Tax Act are
reproduced as under:
“56 (vii) where an individual or a Hindu undivided family receives, in any previous
year, from any person or persons on or after the 1st day of October, 2009,—
(a) any sum of money, without consideration, the aggregate value of which exceeds
fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property …..
(c) any property, other than immovable property …..
…
Provided that this clause shall not apply to any sum of money received—
(a) from any relative;
…
Explanation.—For the purposes of this clause,—
(e) “relative” means,—
…
(ii) in case of a Hindu undivided family, any member thereof;”

• Therefore, gift to an HUF by member is exempt

HINDU UNDIVIDED FAMILY 47

 GIFT TO AN HUF BY OTHERS
• As per the applicability of provisions of section 56 of the
Income Tax Act, 1961, the gift received by an HUF from a
stranger is taxable.
• As per the provisions of Section 56 of the Income Tax Act,
1961, if aggregate amount received during the year is more
than Rs. 50,000/- the same will be chargeable to tax
• There is no restriction for a HUF to accept gifts from any
source.
• However, the intention of the donor should be clear and the
gift should be genuine.
• Gift declaration detailing complete information relating to
the donor should be drawn and recorded.
• Gift by cheque should go in a bank account in the name of
the donee HUF for realization and subsequent realization.

HINDU UNDIVIDED FAMILY 48

 IMPLICATIONS IN INCOME TAX
On the combined reading of Section 56(2) and Section 10(2)
and literally interpreting the provisions of the Act and specific
amendments thereto, following scenario emerges:
•Any sum given by HUF to its members, subject to the
conditions prescribed under Section 10(2) is exempt from tax in
the hands of recipients.
•Gift received by HUF from its members would be excluded
from taxable income

HINDU UNDIVIDED FAMILY 49

 GIFTS-ISSUES
• Can an HUF give away its property by way of gift?
o Although children acquire by birth rights equal to those of a
father (Karta) in an ancestral property, both movable and
immovable, the father has the power of making, within
reasonable limits, gifts of ancestral movable property
without the consent of coparceners.
o Combined reading of the Hindu Law and various judicial
precedents show that whereas, the Karta has the power to
gift ancestral movables within reasonable limits, he has
restricted power with regard to ancestral immovable
property.
o He can however, make a gift within reasonable limits of
ancestral immovable property for “pious purpose”. However,
the alienation must be by an act inter vivos, and not by will.
[Kuppayee vs. Raja Gounder (265 ITR 551 at 559) SC]
HINDU UNDIVIDED FAMILY 50
 GIFTS-ISSUES
• Gift in Violation of Provisions?
o The alienation by a Karta of joint Hindu Family is not
necessarily void but is only voidable if objections are taken
to it by the other members of joint Hindu Family.

o The Lahore High Court in Imperial Bank of India vs. Maya

Devi, AIR 1935 Lahore 367 observed,
“Where, however, the gift is not for religious purposes, or
consists of the whole or large portion of the joint family
property (i.e., above reasonable limit or disproportionate
distribution), the transaction is voidable, but only at the
instance of the other coparceners…..”

HINDU UNDIVIDED FAMILY 51

 GIFTS-CASE LAWS
• The assessee in the capacity of HUF, received a sum of Rs 7
lakh as gift from his uncle. Whether the same was exempt?
Held, Yes. Harshadbhai D. Vaidhya (HUF) vs. ITO [2013]
• Whereas, the decision of the Hon’ble ITAT in Harshadbhai D.
Vaidhya-HUF (supra), by adopting a purposive interpretation,
went a step further and held that gift received by HUF from
relative of Karta (or member of HUF) is also exempt within
the meaning of Section 56(2)(v)/(vi)/(vii)
• In our opinion, the term 'relative' in case of HUF cannot be
stretched so as to include within its ambit, relatives of
members of HUF, in view of clear and unambiguous wordings
of amended clause (e) of the explanation to Section 56(2)
(vii).

HINDU UNDIVIDED FAMILY 52

 CLUBBING PROVISIONS-HUF
BLENDING INDIVIDUAL PROPERTY WITH HUF
•A Coparcener can blend his self acquired property with that of
the HUF by merging it with the family properties or by
impressing such property with the character of HUF property.
•Such act of blending does not require consent of other
members of family. The act is a unilateral act and is a matter of
individual volition.
•Once blending is done, it is not revocable. There is no
provision for retransfer, directly or indirectly.
•A Coparcener can have two HUF. The blending is at his option.
He may blend his property in either of the HUFs.

HINDU UNDIVIDED FAMILY 53

 CLUBBING PROVISIONS-HUF
TAX IMPLICATIONS OF BLENDING OF PROPERTY
•Clubbing provisions under section 64(2) of the Income Tax Act,
1961 as well as section 4(1A) of the Wealth tax Act are
specifically introduced to tax income and wealth arising from
such blending.
•The income arising from such converted property will be
deemed to be the income of the transferor individual and
clubbed with the income of the Individual (donor).
•The property is assessable as individual property of assessee
even though is subsequent partition of HUF such property is
treated as HUF property.
[CIT v. CG. Venkatasubben (1999) 150 Taxman 352
(Mad) ]
•Section 4(1A) of Wealth Tax Act, 1957 assets so converted
shall be deemed to be HINDU
the assets of the
UNDIVIDED Individual transferor. 54
FAMILY
 CLUBBING PROVISIONS-HUF
BLENDING OF PROPERTY-ADVANCE ISSUES
•If an individual transfers a sum of Rs. 50,000 to his smaller HUF
and the same is deposited on interest, then section 64(2) would
be invoked to include the interest income on Rs. 50,000/- say
Rs. 10,000/- in the assessment of the individual who gifted or
threw the amount into the common hotchpot
•However, the section does not apply to the income
subsequently generated by the utilization of the income of Rs.
10,000. If thus amount is utilized for setting up a business, the
income yielded would belong to the HUF and also be
assessable as such.

HINDU UNDIVIDED FAMILY 55

 PARTITION OF AN HUF
WHAT IS A PARTITION?
• Partition of an HUF is governed under section 171 of the Act
• Under the Hindu law, an HUF may be ended by portioning
the property or assets of the HUF
• There is effected a change in ownership of the property as a
result of partition but does not involve a transfer of property.
• The following have shares in assets of HUF:
o All coparceners
o Mother(in case of death of father), which is equal to the
share of the son.
o Child in womb of mother at time of partition

HINDU UNDIVIDED FAMILY 56

 PARTITION OF AN HUF
DUTIES & POWERS OF AO IN PARTITION
• At the time of making assessment u/s 143 or 144, if it is
claimed by any member that any partition has taken place
AO shall make an enquiry after giving notice to all members.
• After inquiry AO shall record finding as to whether there has
been a partition, the effective date of such partition.
• By the use of words ‘total or partial’ in section 171 the duty
has been cast on an assessee to claim before the ITO that a
partition has taken place
• Then the ITO shall proceed and make an enquiry to pass an
order under section 171 if he is satisfied

HINDU UNDIVIDED FAMILY 57

SHARE OF ALLOTMENT ON PARTITION
• Joint family with brothers-Equal Share for each brother
• HUF which includes father, mother and sons-Share will go to
each except that the mother cannot force the partition.
• Partition between father & sons (mother not living)- Each
son will receive share equal to the father’s share
• Before 09-09-2005, none of the Unmarried Daughters had
any right to partition. The only right available was against
providing for their education, maintenance till marriage &
marriage expenses.
• However, from 09.09.2005, the situation has been altered
and now both married and unmarried daughter have equal
shares like a son.

HINDU UNDIVIDED FAMILY 58

 PARTITION OF AN HUF
TAX IMPLICATIONS OF PARTIAL PARTITION
•As per section 171(9) of the Income-tax Act, 1961 the Partial
Partition after 31-12-1978 is not recognized.
•The Income Tax Officer will not take any notice of such a
partial partition, no assessment is required.
•No order under section 171(1) will be passed
•Thus the Income or Wealth excluded as a result of the partial
partition will continue to belong to HUF and tax recovery will
be made from the persons receiving it
•For recovery of tax, section 171(9)(c) becomes applicable.
Each member shall be jointly and severally liable for tax
•As per section 171(9)(d), separate liability of any member shall
be computed as per the portion of property allotted.
HINDU UNDIVIDED FAMILY 59
 TAX BENEFITS OF AN HUF
TAX IMPLICATIONS OF FULL PARTITION
•As per explanation to section 171 of the Income Tax Act, a full
partition occurs when assets of an HUF are physically divided
by metes and bounds.

•A member gets his/her share whenever there is full partition

of HUF or on request for partition made by one or more
coparceners
•After the Partition, the assessment of HUF shall be made as
per the provisions of Section 171 of the Income Tax Act and
order to be passed by the Assessing Officer.

HINDU UNDIVIDED FAMILY 60

 PARTITION OF AN HUF
TAX PLANNING IN PARTITION
In certain cases, tax liability can be reduced by the partition of
an HUF.
• Members have no other source of income
o In this case partition can be done by giving one business
establishment to each coparcener and dividing other sources
in a manner so as to make the partition equitable.
o Such a partition will reduce the tax liability considerably

• Where Members have High Individual Incomes

o In such case, it is not advisable to break or partition
o It should be allowed to continue as a separate taxable unit to
alleviate the tax burden

HINDU UNDIVIDED FAMILY 61

 PARTITION OF AN HUF
TAX PLANNING IN PARTITION

• Partial Partition for Tax Planning

o Partial Partition is recognized in Hindu Law
o Any HUF not yet assessed to Tax can be partitioned partially
and thereafter assessed to tax

HINDU UNDIVIDED FAMILY 62

 PARTITION OF AN HUF
TAX PLANNING IN PARTITION
• Following legal aspects should be kept in mind while
considering the partition of an HUF
o Distribution of the assets of an HUF in the course of Partition,
would not attract any capital gains tax liability as it does not
involve a transfer
o On the basis of the same reasoning, distribution of assets in
the course of partition would not attract any gift tax liability,
and,
o There would be no clubbing of incomes under section 64 as it
would not involve any direct or indirect transfer

HINDU UNDIVIDED FAMILY 63

 PARTITION OF AN HUF
In order to be acceptable or recognizable partition under
section 171 the partition should be complete with respect to all
members of HUF and in respect of all properties of HUF and
there should be actual division of property as per specified
shares allotted to each member. – Mohanlal K. Shah (HUF) v.
ITO 1 SOT 316.
Setting apart certain assets of HUF in favour of certain
coparceners on the condition that no further claim in
properties will be made by them is nothing but a partial
partition and not a family arrangement not recognized in view
of s. 171(9) – ITO v. P. Shankaraiah Yadav 91 ITD 228.

HINDU UNDIVIDED FAMILY 64

 WEALTH TAX & HUF
•Separate exemption of Wealth-tax for HUF’s up to Rs.
30 lakhs Wealth.

•One House- Wealth Tax Free

The taxpayer can claim one house in the name of
the HUF as a wealth tax free asset.

•Productive assets of HUF are fully exempt from

Wealth-tax

HINDU UNDIVIDED FAMILY 65

 PRACTICAL ASPECTS
Documents required for PAN Application
•Proof of Identity of Karta
•Proof of Address of Karta
•Marriage certificate issued by Registrar of
Marriages or an Affidavit sworn before a magistrate
stating the date of marriage or proof of date of birth
of Karta
•An affidavit made by the Karta of Hindu Undivided
Family stating name, father’s name and address of
all the coparceners on the date of application.
•Date of Creation of HUF and for ancestral HUF date
can be 01-01-0001 where the date of creation is not
available.

HINDU UNDIVIDED FAMILY 66

 PRACTICAL ASPECTS
Documents required for Bank Account
•Bank account should be in the name of HUF
•Photograph of Karta
•Proof of identity, address of Karta
•Pan number in HUF's name
•HUF Declaration : A declaration form in which
every member signs stating the name of Karta
declares
oThey are the only members of HUF.
oKarta to have sole authority over HUF account
oEvery transaction on behalf of HUF account, made
by each member of the family is governed by karta

HINDU UNDIVIDED FAMILY 67

 OTHER ISSUES
Whether property purchased with aid of Joint Family Funds can be
assessed as Income of the Individual?
Property purchased with the aid of joint family funds, howsoever
small that may be, still the property would be HUF income and cannot
be income of the individual with major portion of purchase price.
[S. Periannan v. CIT 191 ITR 278. ]

HINDU UNDIVIDED FAMILY 68

 OTHER ISSUES
Whether deduction is available to partnership firm u/s 40(b) in
respect of salary or commission paid to a partner who was a partner
in representative capacity of HUF?
Salary paid to working partner even though as Karta of HUF, is
received as individual and as working partner, hence allowable as
deduction while computing income of firm.
[CIT vs. Jugal Kishor & Sons [2011] 10 taxmann.com 82 (All.)]

Whether the Salary income of wife of Karta is clubbed in the Income

of HUF?
Where a person is a partner in a partnership firm not in his individual
capacity but as the karta of the Hindu undivided family, the income
accruing to his wife on account of her being a partner in the same
partnership firm cannot be included in the total income of such
person in an individual assessment or in the assessment of the Hindu
undivided family.
[CIT v. Om Prakash [1996] 217 ITR 785 (SC)

HINDU UNDIVIDED FAMILY 69

 OTHER ISSUES
Whether relief can be claimed on occupancy of one residential
house Properties?
The benefit of relief in respect of a self occupied property under
section 23(2) is available to the owner who can reside in his own
house. AN HUF is nothing but a group of individuals related to each
other by blood or in a certain manner.
The family can reside in the house which belongs to the HUF. A family
cannot consist of artificial persons.
There is nothing in the words used in section 23(2) which excludes its
application to an HUF which is a group of individuals related to each
other
[CIT v. Hriprasad Bhojnagrawala (2012) 342 ITR 69(Guj)]

HINDU UNDIVIDED FAMILY 70

 OTHER ISSUES
Whether the benefit u/s 54 can be available on purchase of more
than one residential house Properties?
The expression ‘a residential house’ should be understood in a sense
that building should be residential in nature and ‘a’ should not be
understood to indicate a singular number. That when an HUF’s
residential house is sold, the capital gain should be invested for the
purchase of only one residential house, is an incorrect proposition.
After all, the property of the HUF is held by the members as joint
tenants. If the members, keeping in view the future needs in event of
separation, purchase more than one residential building, it cannot be
said that the benefit of exemption is to be denied u/s 54(1)
[CIT v. D. Ananda Basappa 180 Taxman 4 (Kar.) [2009] ]

Whether the exemption u/s 54B of the IT Act is available to HUF?

Exemption under Section 54B is also available to HUF subject to the
following condition: If HUF transfer a land which is used for
agricultural purposes by a HUF, the rollover relief u/s 54B is available
to the HUF. The amendment is applicable on transfers made after 01-
04-2013
HINDU UNDIVIDED FAMILY 71
THANK YOU

HINDU UNDIVIDED FAMILY 72