A Hindu Undivided Family (HUF) is known as a Joint Hindu Family under the Hindu Law. It comprises all persons lineally descended from a common ancestor and living under a common roof and joint in estate, food and worship. Yet, an HUF can exist without holding any property. There are two schools of law governing HUF in India: Mitakshara and Dayabhaga. West Bengal is the only state in India which follows the Dayabhaga school of law.
A coparcenary is purely a creature of law. It comprises only those persons who acquire an interest in the joint coparcenary property by birth, and generally includes sons, grandsons and great grandsons who are holders of the joint family property for the time being. In other words, the three generations who are holders of the joint family property in an unbroken male descent are members of an HUF. A coparcener’s interest can be enlarged by death in the family or diminish by birth.
The Hindu Succession (Amendment) Act, 2005, gave daughters the same rights and liabilities in the Mitakshara coparcenary property as the sons. Consequently, a daughter is recognised as a coparcener and get interests in the coparcenary property of the father’s family by birth. This applies to all daughters, including those born/married prior to 9 September 2005. This rule supersedes the one carried out earlier in Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka. HUFs partitioned before 20 December 2004 are not affected by this change, provided the partition was registered under the Registration Act.
A daughter can now not only continue a joint family but also form one with her father and brothers. Since the daughters have been made coparceners irrespective of their marital status, thus, even after their marriage she will continue to be a coparcener as well as a member of JHF because all the members of a coparcenary are necessarily the members of HUF too. This means that after marriage the daughter will be a member of 2 joint families. Similarly, the children born to her will be members as well as coparceners in their maternal as well as paternal families. It may further be noted that after the amendment if she happens to be senior most member, a female can become Karta. She will continue to be Karta even after her marriage. She can even acquire the status of the head of the family.
In a coparcenary property, every coparcener has a joint interest and joint possession. A joint family property cannot be disposed of, except out of legal necessity or for the benefit of the family. While selling an immovable property, care should be taken to obtain the high court’s permission if there is a minor in the family. The high court, generally, gives the go-ahead only if the minor’s interest is safeguarded. Any coparcener may, voluntarily, blend his separate property with the HUF’s property with the intention of abandoning a separate claim on it. But under tax laws, income arising from such transferred or gifted property to the HUF will continue to be included in the income of such a coparcener.
Every coparcener has a right to ask for partition, which may be total or partial. A partition is total when all properties of the family are divided among the members, and on such a partition, the HUF ceases to exist. Under Hindu Law, it is not necessary to divide all property by metes and bound, but without that the partition will not be recognised under tax laws.
Partial partition is of two types: partial partition vis-a-vis property, which means distributing certain property to the members and retaining balance properties with the family; partial partition vis-a-vis person, which implies distributing certain properties to some members of the family, following which such member won’t remain part of the family any longer. In partial partition, an HUF continues to be a separate entity. The only change is some of the property/ coparcener don’t continue to be part of the family. All coparceners can, after effecting valid total partition, decide to reunite by bringing the entire property back into the HUF. Such an act is known as reunion. Female members, like the mother, who cannot ask for partition, are entitled to a share equal to that of a son in the event of partition.
Partial partition is not recognized under the Act. The provisions of section 171(9) are applicable on satisfaction of two conditions, firstly, the partial partition should have taken place after 31st December, 1978 and secondly, such partition must have taken place in an HUF which was assessed as an HUF before. If the above two conditions are satisfied, such family will continue to be assessed as if no such partial partition has taken place i.e. the property or source of income will be deemed to be belonging to the HUF and no member will be deemed to have separated from the family. Each member or group of members of such family immediately before such partial partition and the family will be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this act by such HUF, whether before or after such partial partition.
A coparcener’s interest devolves by survivorship to other coparceners and not by succession. But, if a deceased Hindu has left a surviving relative specified in Class I of the Schedule to the Hindu Succession Act, 1956, his/her interest in Mitakshara coparcenary property does not go by survivorship, but will devolve by testamentary or intestate succession to his/her legal heirs. If the share of the coparcener is devolved to the legal heir by succession, he acquires indefeasible interest in the HUF that will remain undiminished. His/her share will be determined as if the notional partition has taken place immediately prior to death of the coparcener. A coparcener is entitled to will away his coparcenary interest in the family.
HUF is a separate taxable entity. Its income is taxed independently of the members’ income. Income up to Rs 2.5 lakh earned during the assessment year 2020-21 is exempt from tax. It can also claim deductions under Chapter VI-A. Under Section 80C, up to Rs 1.50 lakh is available for investing in specified avenues. If other members of the family are in the highest tax bracket, it’s prudent to generate income of the HUF by investing its funds in income-earning avenues to take advantage of the lower tax base.
If the capital or income base of the HUF is large, it may be more viable to make a total partition of the HUF property. On the partition of the larger HUF, each of the married sons will receive the property for and on the behalf of his own smaller HUF. If the smaller HUFs are in the lower tax bracket, it will help save tax in view of spreading income of the larger HUF. If a total partition takes place among members of the HUF, which were hitherto assessed to tax, an application for getting this fact recognised will have to be made to the assessing officer. Partial partition is not recognised for tax purposes. Income earned on the property received by a member on partial partition would be clubbed with the income of HUF as if there’s no partition.
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(Republished with Amendments by Team Taxguru)