Hindu undivided family (HUF) consists of family members who are descendants from a common ancestor. They include all the male and female descendants of any ancestor. Eg: If any male member has one son and one daughter both of his decedents form a part of his HUF. Even if any individual has two daughters both form a part of HUF and have their rights of their father’s property and ancestral property. HUF is formed to get certain relaxation in computation of taxes.
The head of HUF is called Karta and the other members of the HUF are called coparceners or members. Coparceners are persons who acquire by birth interest in the joint or Coparcenary property. They are sons, grandsons and great-grandsons of the holder of the property. In other words, the next 3 generations are next to the holder of unbroken male descent (as per Mitakshara law, Hindu Succession Act).
The only difference between Coparceners and members is that Coparceners can become Kartas in their HUF however, members cannot be Kartas. As per the Hindu succession act, Karta acts as a partner of the HUF (same rights of partner as per the Indian Partnership Act). As per Hindu Law, there are 2 schools under which a HUF is treated. They are-
- Mitakshara School
- Dayabhaga School
There are certain different treatments for coparceners under these schools which are followed in different parts of country. Mitaraksha School Hindu law is practiced all over the country whereas Dayabhaga school is practiced in the eastern parts of country.
Inheritance
There is difference in the law of inheritance between the two systems of Mitakshara and Dayabhaga, the existence of a number of schools of Hindu law, the matriarchal system prevailing in some southern parts of the country and dissimilar local and family customs obviously could not embrace a whole genus of cases and it was not possible to expect a system which was a homogeneous and consecutive whole. (As per Hindu Succession act 1956)
The two systems of inheritance to the separate or self-acquired property of a male intestate, which hitherto prevailed under Mitakshara and Dayabhaga schools, are abolished and a uniform system comes into operation as propounded in section 8. The three classes of heirs recognised by Mitakshara, i.e., Gotraja Sapindas, Samanodakas and Bandhus and the three classes of heirs recognised by Dayabhaga, i.e., Sapindas, Sakulyas and Bandhus cease to exist in case of devolution taking place after the coming into force of the Act. (Refer to the Hindu Succession act 1956)
Coming back to the term “Hindu Undivided Family”, it has not been defined under the Income Tax Act or in any other statute. The essentials are
- One should be Hindu, but not Muslims or Christians;
- There should be a family i.e group of persons – more than one and
- They should be undivided i.e living jointly and having antecedents amongst them.
All the three essentials are cumulative. HUF is a entity consisting of persons lineally descended from a common ancestor and includes their wives and unmarried daughters, who are living together.
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, if daughter unmarried, she acts as a co-parcener with same rights like the son. Females married to Hindu males of the family become members of the HUF by marriage with the male member. HUF helps person/s of one family to acquire interest by birth the property and assets in joint Hindu family. As per the Hindu succession act there is no requirement as such that family must have any property or assets to form an HUF. Any persons (more than one person) can form a HUF if they possess the above criteria within the family. HUF also can be formed between a husband and wife even though they have no issues.
According to law, a coparcener can be a part of two HUF as he /she may be associated with family of his ancestor as well. A coparcener can descend his individual property with his smaller HUF wherein he becomes a Karta while he is a member in his bigger HUF which includes his father and ancestors.
There are no restrictions on acceptance of gifts for an HUF. An HUF can accept gifts from outside also provided the gift is genuine and in the personal capacity of the donee. The amount of the gift shall be through proper banking channel or any channel which is legally valid and the gift shall be accompanied by gift declaration. Wherever, necessary the gifts shall be registered if applicable
A HUF property also can bequeathed in the form of a WILL. According to Section 30, of the Hindu Succession Act 1956, Hindu can dispose of by WILL or any other form of testamentary disposition of any property which he/she is capable of disposing of.
The coparceners of any HUF are entitled to demand partition. Even women or widows of Hindu HUF can demand partition under the Hindu Women’s right to Property Act 1938. A coparceners or any member may enter into a partnership with the Karta of HUF by bringing his own capital or even by contributing his skills and labour. There is no cap on any partnerships between the Hindu family
Income Tax perspective
A HUF is treated as a person as per the Income tax act 1961 under section 2 (31) for the assessment of income tax. AN HUF is allotted a PAN (Permanent Account no.) for filing income tax.
Every HUF is assessed as a different unit for income tax purposes. Salary income charged by the Karta or any member can be considered as income for the individual member under the income tax act and shall be liable for taxation.
Income and interest accumulated by the HUF account can be distributed within the coparceners if required or can be calculated as income for the HUF. The tax treatment for such income shall be as per individual tax laws.
Article by- Swanand Pandit, BCOM, LLB, PGDM. Email to- swanand.pandit@gmail.com
