The Government clarified in the Rajya Sabha that a Hindu Undivided Family (HUF) is recognised under the Income-tax Act, 1961 as a distinct assessable unit only for taxation, with Section 2(31) treating it as a “person” for assessment purposes. However, this recognition does not confer corporate or juridical status enabling regulated financial or commercial activities. As per the RBI Act, 1934 and applicable Master Directions, HUFs—being unincorporated bodies—cannot be registered as non-banking financial companies or chit fund companies, nor are they permitted to collect money from the public. Consequently, questions about protection of public funds in such cases do not arise. The Reserve Bank of India retains concurrent enforcement powers with State Governments for violations involving chit funds, including criminal action. For RBI-regulated entities found contravening guidelines—such as unauthorised acceptance of public deposits—the RBI may impose supervisory measures, monetary penalties, business restrictions, or cancel registration on a case-by-case basis.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
RAJYA SABHA
UNSTARRED QUESTION NO. 400
TO BE ANSWERED ON TUESDAY, THE 03rd FEBRUARY, 2026/14 MAGHA, 1947 (SAKA)
“STATUS OF HUF IN INCOME TAX AND LEGAL CONTEXT”
400: Shri Yerram Venkata Subba Reddy:
Will the Minister of FINANCE be pleased to state: –
(a) the status of ‘Hindu Undivided Family’ in the context of income tax and legal position;
(b) whether HUFs are permitted to collect money in the form of deposits or otherwise;
(c) whether HUF can be formed as chit fund company or NBFC and collect money from people;
(d) if so, who is going to protect such money of common people;
(e) the role RBI has in above cases and whether there have been any instances of chit fund companies or NBFCs collecting money from people with RBI permission; and
(f) if so, details thereof and the action RBI has taken on such companies?
ANSWER
MINISTER OF STATE FOR FINANCE
(SHRI PANKAJ CHAUDHARY)
(a): Under the provisions of the Income-tax Act, 1961, a Hindu Undivided Family (HUF) is recognized as a distinct assessable unit for the limited purpose of taxation. Section 2(31) of the Act includes “Hindu undivided family” within the definition of “person” for assessment purposes. The Act, however, does not confer upon an HUF the status of a body corporate or a juridical person for undertaking regulated financial or commercial activities.
(b) & (c): As per Chapter IIIC and section 45-I of RBI Act, 1934 and subject to regulations contained in Master Direction – Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 2016 dated August 25, 2016 (as amended from time to time), HUFs (being unincorporated bodies) can not be registered as NBFCs or chit fund company and can not collect money from public.
(d): In view of (b) & (c) does not arise.
(e) & (f) The power to pursue violation of the provisions (filing criminal case under Section 45-T of RBI Act) in respect of chit fund companies rests concurrently with the Reserve Bank and the State Governments concerned. In case of entities regulated by RBI (including NBFCs) found to be in contravention of extant guidelines, including unauthorised acceptance of public deposits, the Bank undertakes on a case-to-case basis, appropriate regulatory/supervisory action, inter alia, imposition of business restrictions, monetary penalty, and, cancellation of Certificate of Registration.
