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Hindu Undivided Family Formation to Partition – Legal and Tax Implications By CA. Deepak M. Rindani. I. Basic Concepts: Who is a Hindu HUF – all persons lineally descended from a common ancestor and joint in property, food and worship HUF is not a juristic person in law
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Hindu Undivided FamilyFormation to Partition – Legal and Tax Implications By CA. Deepak M. Rindani
I. Basic Concepts: • Who is a Hindu • HUF – all persons lineally descended from a common ancestor and joint in property, food and worship • HUF is not a juristic person in law • Sources of Hindu Law • Manusmruti • Dharmashastras • Historical Background
Who are considered Hindus? • Those who are Hindus by Birth and religion • Jains and Sikhs • Illegitimate Children whose both parents are Hindus • Any child whose father or mother is Hindu and who is brought up as Hindu • Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)
Who are NOT considered Hindus? • Muslims, Parsis and Christians • Those who have converted from Hinduism • Khojas and Cutchi Memons (subject to certain riders/provisions and not dealt with here)
HUF Tree – Illustrative only - A’s Wife Daughter Sons
III. Creation of HUF: Is in God’s hands, what we can do is to create HUF property once there is a family nucleus. Modes of creation of HUF property are: 1) By Blending: • Of self acquired property into HUF property by conduct/ declaration of members of HUF • This has tax implications
III. Creation of HUF: 2) By Gift from Non-members: • Nucleus should exist – property created by gift • Intention of donor, documentation, receiver’s statement
3) By Partition of Pre-Existing HUF : • Partial Partition: Partial as to members and/or as to property • Total Partition: Nothing left in HUF • Unequal partition is possible • Who is entitled to enforce partition • Who is entitled to how much share upon partition • Nature of property on partition in hands of receiver
4) By Will (of any person): • To own HUF • To HUF of others • To future HUF of unmarried son 5) By Reunion: • Of previously partitioned HUF • All members who were partitioned need not necessarily reunite • But those who reunite must bring back all properties received on earlier partition
6) By Joint Labour: • Family of craftsmen, joint activity and creation of joint income
Some Typical Situations: • Husband & wife only – no children • Single male + mother + wife + daughter (Gowli Buddana) • Single male + wife + daughter (N.V. Narendranath) • single male + widow of deceased brother • two or more widows of deceased coparceners with undivided properties ( AR Veerappa Chettier ) • single male + mother +sister • HUF can exist without single male coparcener
HUF can exist with totally empty kitty of property • Females cannot blend their property into HUF but can give gift (Pushpa Devi) • Females can be karta in absence of major male member • Sole surviving coparcener (male or female) • Only females left in family
IV. Management of HUF Property: • Concept of Karta – Manager • Who can be Karta • Powers & duties of Karta • Powers & duties of other members – rights of education, maintenance • Dispositions out of HUF property • Debts of HUF • Obligations upon HUF property • Pious obligation of sons to pay debts of father out of coparcenary interest of sons in HUF property • Duty of father to maintain wife, minor sons, unmarried daughters and infirm parents out of HUF property
V. Partition of HUF: • Meaning of – severance of status and interest • Mere division of shares vs Metes & Bounds • Kinds of – Total / Partial • Rights to enforce partition • Allotment of shares of partition (Per Stripes and Per Capita) • Documentation & Care
VI. HUF and Law of Succession: • Devolution of interest in HUF upon death of Karta/Member • Overriding effect of Hindu Succession Act, 1956 – Sec. 6 • Succession to individual property • Testamentary vs Intestate succession to interest in HUF • Ancestral Agricultural Lands
VII. Status of females and daughters in HUF: • Mother • Wife • Daughters • Daughters-in-law • Rights of daughters and important implications of HS (Amendment) Act, 2005 • Due to amendment, daughters to have same rights as coparceners • Is there any distinction between married and unmarried daughters now?
VIII. Taxation of HUF: • Treated as a “person” u/s 2(31)(ii) • Tax rates – same as Individuals • W.T. also leviable • Significant provisions of I. T. Act specific to HUF:
IX. HUF and Partnership Business: • Implications under Partnership Act • Interest on capital • Remuneration & Sec. 40(b) • Borrowings from Banks • Drafting care in partnership deeds • Same person as partner in dual capacity – as Karta and as Individual in same firm – partnership law recognizes only individual as partner (Rashik Lal & Co. 229 ITR 458 – SC)
HUF as Proprietor of Business: • Use of HUF funds and labour • Use of HUF property • Can professionals or service providers function as HUF? • Issue regarding lending by Banks
X. Is HUF yet a Tax Planning Tool? • Is a separate taxable entity • Gives rise to division of income and wealth • Is a tool to accumulate business assets/property in HUF name and allow use by other business entities to distribute wealth and tax incidents • Transfer of funds inter se HUF and its members by way of loans rather than gifts • Separate entitlements to exemption from capital gains u/s 54, 54EC, 54F etc. • Possibilities of multiple HUFs in appropriate situations
Stamp Duty on HUF • On Partition • On Release • Existence of immovable property • Probate duty • Issues reg. titles, Revenue records etc.
XI. Is HUF Relevant In Present Times? • Rising trend of nuclear families and individualism – changing social forces • Are our families truly joint and undivided? • Equal rights to daughters after marriage – boon or bane – continuing debate • Issues reg. banking, borrowing, transfer of immoveable property, probate etc. • Can we preserve our culture of unity and mutual family bonding through HUF?
Note: - Tax advantage of conversion has since been lost by insertion of Sec. 64(2) in IT Act, 4(IA) in WT Act
