Some Important Aspects of HUF under Income Tax Act 1961

HUF means HINDU UNDIVIDED FAMILY. HUF is taxed separately from an individual i.e. its members. Only Hindu, Janis, Buddhists and Sikhs family can come together and form a HUF. HUF is a separate entity under the Income Tax Act and has its own PAN and files Income Tax Returns independent of its member.

Hindu Succession (Amendment ) Act, 2005 has been amended the Hindu Succession Act with effect from 9^th September, 2005. The Amendment Act gives a daughter in the HUF (whether married or not) the same status as that of a son.

KARTA OF HUF : The Karta is the manager of HUF and have wide powers by way of controlling the affairs of the HUF. The Karta enjoys his position in the HUF by operation of law without any agreement and consent of other members of HUF. He stands in a fiduciary relationship with other members, but he is not accountable to anyone.

Article 236 of the Mull Hindu Law defines “Karta” as follows:

Manager – Property belonging to joint family is ordinarily managed by the father or other senior member for the time being of the family. The manager of the joint family is called Karta.

The Karta is entrusted not only with the management of properties of the family but is also entrusted with the general welfare of the family. Karta is the head of the family and acts on the behalf of all members of the family but an agent of members of the family.

Who can be “Karta” ?

Karta is the senior most male coparcener of the HUF. Even if the Karta becomes aged, infirm, ailing or even a leaper, he may continue to be Karta. Where the senior most member is not Karta, the next senior male member takes over as Karta.

Only if the senior most member gives up his right, a junior coparcener can become Karta of the HUF with the consent of all other members as held by Supreme Court in Narendra Kumar J. Modi VS. CIT(1976) 105ITR109(SC)

Until January, 2016, a woman could not be the HUF Karta but, as per the landmark judgment of  Delhi High Court a woman member can become the Karta of HUF. However the same has not been incorporated in the Income Tax Act as yet.

Who are the Coparceners of HUF?

All the members of the Karta’s family can be members of the HUF. The male members are known as coparceners, while females are known as just members. The difference between the two is that any of the coparceners can demand for partition of HUF. The female members do not have this right. The daughters become the coparceners of their father’s families since birth in the same manner as sons have the same rights in the family properties.

As the HUF is a separate entity then Individual, naturally HUF has its own PAN and files separate return of

income. HUF can do business and also become partner in a partnership firm. If HUF running business can pay salary to its members if they contribute to it’s functioning of the HUF business and salary expense can be deducted from the business income.

How to form HUF?

To form an HUF, there should me minimum two persons required. HUF is automatically created at the time of marriage. One person cannot form HUF, it can only be formed by family.  HUF consists of common ancestor and all of his lineal descendants, including their wives and unmarried daughters. We have seen in the beginning that Hindus, Buddhists, Jain and Sikhs can form HUFs.

Normally, where there is ancestral property and have income from that property, it automatically considered   as income of HUF. If any person would like to create HUF, he may create by Gift, by preparing Gift Deed in which names of the members are to be mention. It may be form by WILL also.

Once HUF is created or form by deed must be registered in its name. A HUF should have a legal deed. With the help of deed, one can apply for PAN and after receiving PAN can opened Bank Account in the name of HUF.

Please remember that, the greatest disadvantage of HUF is that its members have equal rights on the property. The common property cannot be sold without the concurrence of all the members. More ever   any addition to the family, by way of birth or marriage, become a member of HUF and get equal rights in property.

Partition: Formally, there was a partial partition and one can create multiple HUF, but since long it has been ban on partial partition. Only full partition is permissible for dissolved the HUF. Under a partition, assets are distributed to members which can lead to a lot of disputes and can be a lot of legal hassle.

Once a HUF is formed, one must continue to file tax returns, unless partition takes place. Any claim for partition is made to the assessing officer, he will make an enquiry after giving due notice to the members. Income from the property which was partitioned is taxed as individual income of the member. If the member forms another HUF with his wife and children, the income of the property which was transferred from the original HUF is taxed in the hand of new HUF.

Can a daughter claim share in her father’s property where her father had passed away before the amendment made in 2005, giving equal rights to sons and daughters?

The answer is very simple NO. On the date of amendment for the daughter to get the benefit in 2005, both i.e. father and daughter has to alive. If the father has passed away before the amendment date, then she wouldn’t have been a daughter on the date of amendment. Hence she cannot claim a share in father’s property.

What should be the status of HUF?

It is not necessary that a HUF must always be a resident of India. In case the control and management of the HUF are situated outside India, the HUF would be a non resident. Where the affairs of the HUF are managed from outside India, the status would be Non Resident.

If the karta resides outside India but the HUF is managed by members from India, then status would be Resident of India

Deductions u/s 80 and other exemptions can be claimed by the HUF in its income tax return.

A HUF is taxed at the same rates as an Individual.