Last Updated On:
June 25, 2020, 5:39 p.m.
HINDU UNDIVIDED FAMILY
Under Hindu Law, a HUF is a family consist of all persons lineally descended from a common ancestor and includes their wife and unmarried daughters.
Let us know in detail about the History or Evolution of the HUF/ Joint Hindu family, their benefits, and tax implication under the Income Tax Act, 1961.
HISTORY AND EVOLUTION OF JOINT HINDU FAMILY:
Joint Hindu Family (JUF) is an important aspect of the life of Hindus. According to Mitakshara Law, JUF consists of a common ancestor and all lineal male descendants up to any generation together with the wife(s) or widows and unmarried daughters of the common ancestor and of the lineal male descendants.
Features of Joint Hindu Family:
- It is a legally recognized unit which can neither be created by the act of members nor by agreement between the parties. A stranger cannot be admitted into it except by marriage or adoption.
- It has no legal entity distinct.
- Status can be acquired into it only by birth, marriage to a male member, and adoption.
- It is a unit and all its affairs are represented by its Karta.
- The status can be lost by conversion to a non-Hindu faith, marriage to non-Hindu under the Special Marriage Act, 1954, or being given invalid adoption and on a partition.
- The general rule is that a single male or female cannot make a joint family. There must be at least two members to constitute it.
- The members of JHF may reside separately, thus, it is not necessary that all members of the joint family live or work at the same peace.
- For the purpose of tax assessment, the revenue statute uses the expression Hindu Undivided Family (HUF) which is slightly different from the definition of Joint Hindu Family (JHF)
BENEFITS OF FORMING A HINDU UNDIVIDED FAMILY(HUF):
HUF has various Benefits. Some are listed below:
- The benefit of HUF is available to all Hindus regardless of whether they are salaried, professional, government employees, running a business or otherwise:
- Jain, Sikh, and Buddhist families even though they are not governed by the Hindu Law, but are eligible to form and get treatment as a HUF under the Income Tax Act.
- You can be a salaried employee, a government employee, or a self-employed professional or running your own business. You are eligible to form a HUF under all the situations.
- People can form HUF at any time. It is not necessary that it can only be formed when a child is born post marriage. Even when your son gets married, you can then form your HUF.
- HUF unites and keeps the social fabric intact
It keeps all the members of the family united. With time children in a family grow up and move to distant places away from their parents/family due to work, job, business, etc. HUF helps keep all the members close-knit even when they are living separately.
- HUF is a separate Person/Entity:
- HUF is treated as a separate ‘person’ under section 2(31) of the Income Tax Act, 1961.
- HUF is a separate entity for the purpose of tax assessment under the Act. It acts as a bonus for Hindu families which enables the creation of an additional (artificial) member in the family who can earn its own income and save the taxes just like all the other earning members of the family.
- It enjoys various separate tax benefits i.e deductions, slab rates, etc. just like the individuals.
- HUF is a wealth creator:
- The incomes and gains in a HUF accrue over a long period of time and multiply. In due course of time, HUF becomes financially robust and serves as a strong and distinct (artificial) member of your family.
- It has been seen many times that HUFs hold a number of properties and earns handsome income by way of rentals and interest.
- HUF is an effective tool to save Taxes:
A HUF is entitled to deductions available under Chapter VI-A i.e. deduction under section 80C, 80D, 80G, etc. while calculating its total taxable income.
An HUF is taxed on the same slab rates which are applicable to an Individual i.e. NIL tax up to a total income of Rs.2,50,000
Moreover, the new tax regime given effect by the Finance Act, 2020 which is applicable for F/Y 2020-21 and onwards is available for a HUF as well.
TAX IMPLICATIONS OF HUF UNDER INCOME TAX ACT, 1961:
Under Hindu Law, a HUF is a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. A HUF cannot be created under a contract, it is created automatically in a Hindu Family.
Assessment of HUF:
- There should be a coparcenership. In this connection, it is worthwhile to mention that once a joint family income is assessed as that of HUF, it continues to be assessed as such in subsequent years till partition is claimed by coparceners.
- There should be a joint family property that consists of ancestral property, property acquired with the aid of ancestral property, and property transferred by its members.
Ancestral Property: Ancestral property may be defined as the property which a man inherits from any of his 3 immediate male ancestors, i.e. his father, grandfather and great grandfather. Therefore, property inherited from any other relation is not treated as ancestral property.
Income from ancestral property held by following families is taxable as income of HUF:
- A family of widow mother and sons (maybe minor or major);
- Family of husband and wife, having no child;
- Family of two widows of deceased brothers;
- Family of two or more brothers;
- Family of uncle and nephew;
- Family of mother, son and son’s wife;
- Family of a male and his late brother’s wife.
PARTITION OF HUF:
- Partition means a division of property. Where the property is capable of admitting a physical division, the share of each member is determined by making the physical division of the property.
- Where the property is not capable of physical division, partition shall mean such division as the property may admit i.e. to the maximum extent possible.
- Though partition can be claimed only by coparceners, the following persons are also entitled to their share in the property:
- A son in the womb of mother at the time of partition; and Mother (gets equal share if there is a partition between sons after the death of their father).
ASSESSMENT AFTER PARTITION:
- Once the income of a joint family is assessed as income of a HUF, it will continue to be assessed as such until one or more coparceners claim partition.
- Such a claim must be made before the relevant assessment year. The Assessing Officer, on the receipt of such a claim, must make an inquiry after giving due notice to the members and record a finding whether there has been a partition and if so, the date of partition.
- The income of the family from the first date of the previous year till the date of partition is assessed as income of HUF and, thereafter, income from the property which was subject to partition is assessed as individual income of the recipient members.
- If, however, the recipient member forms another HUF along with his wife, son(s) and daughter(s), income of the property which was subject to partition is chargeable to tax in the hands of new HUF.
Under the Hindu Law, a HUF is entitled to effect a partition that may be total or partial.
Total Partition– where a HUF undergoes a total partition, the entire joint family property is divided amongst all coparceners and the family ceases to exist as a HUF.
Partial Partition– A partial partition, on the other hand, maybe partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family or both.
TAXABILITY OF HUF
In order to compute the income of a HUF, one has to first ascertain its total income under the different heads of income ignoring incomes exempted under sections 10 to 13A of this Act.
The following points should be kept in mind while computing income:
- If funds of a 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 firm may be treated as income of the family.
- However, if fees or remuneration is earned for services rendered by the member in his personal capacity, it will be treated as the personal income of the member.
- If any remuneration is paid by the HUF to the Karta or any other member for services rendered by him, remuneration is deductible from the income of HUF if such payment is genuine and not excessive and paid under a valid and bona fide agreement.
The following incomes are not taxed as income of HUF:
- If a member has converted or transferred without adequate consideration his self-acquired property into a joint family property, income from such property is not taxable in the hands of the family. It continues to get taxed in the hands of the transferor Clubbing of incomes as per section 64(2).
- The income of impartible estate (though it belongs to family) is taxable in the hands of the holder of an estate and not in hands of HUF.
- Personal income of the members cannot be treated as income of HUF.
- “Stridhan” is the absolute property of a woman; hence income arising therefrom is not taxable as income of HUF.
- Income from an individual property of the daughter is not taxable in hands of HUF even if such property is vested into HUF by daughter.
DEDUCTION FROM GROSS TOTAL INCOME [GTI] :
A HUF is entitled to deductions available under Chapter VI-A i.e. deduction under Section 80C, 80D, 80G, etc. (as applicable) while calculating its taxable income.
RATE OF TAX
- A HUF is taxed on same slab rates which are applicable to an Individual (i.e. NIL tax up to a total income of Rs. 2,50,000/-)
- The tax rebate provided under section 87A, as available to an individual, is, however, not available to a HUF.
- The new tax regime given effect by the Finance Act, 2020 (applicable for F/Y 2020-21 and onwards) is available for a HUF as well.
A HUF is liable to pay Alternate Minimum Tax (AMT) if the tax payable is less than 18.5% (including cess and surcharge) of “Adjusted Total Income” subject to prescribed conditions.
RETURN OF INCOME:
HUF has to file the return of income if its total income without giving effect to the provisions of section 10(38), 10A, 10B or 10BA or 54 or 54B or 54D or 54EC or 54F or 54G or 54GA or 54 GB or Chapter VIA (i.e., deduction under section 80C to section 80U), exceeds the maximum amount which is not chargeable to tax i.e. exceeds the exemption limit.
However, as per the Finance Act, 2020 a HUF shall file its return of income, even if its income does not exceed the maximum exemption limit if the HUF
- has deposited an amount (or aggregate of amount) exceeding Rs. 1 crore in one or more current accounts maintained with a banking company or a co-operative bank
- has incurred more than 2 lakh on travel to a foreign country, for any of members or any other person
- has incurred an expenditure exceeding Rs. 1lakh on electricity consumption
A HUF can file its return of income using the following income tax return forms (ITRs):
||For HUFs not having income from profits and gains of business or profession
||For HUFs having income from profits and gains of business or profession
||For HUFs being a resident* (and ordinary resident – OR**) having total income upto Rs. 50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE
The due dates for filing return of income are as follows:
||Extended due date for F/Y 2019-20
|HUF whose accounts are required to be audited
||30th November 2020
Filing of Tax Audit Report
||31st October 2020
|In case of HUF having an international transaction or specified domestic transaction(s) and is required to furnish a report in Form No. 3 CEB
||30th November 2020
|In all other cases
||30th November 2020