A to Z of Taxation of Hindu unidivided Family (HUF)

[CA.Mohammed Lakkadsha]

A.  HUF comes into existence on the marriage of the Male family member as per the Hindu Succession Act,1956. B.  For the Income Tax Act, of 1961 HUF came into existence on childbirth (Both male & female) only, as a minimum Two coparceners are required for the formation of HUF. C.  Female members can be coparcener with effect from 09-09-2005 hence any child can bring into existence the HUF as per Income Tax. The wife cannot be a coparcener and can only be a member. Hence HUF cannot survive with only the Wife member remaining and all other Coparcener ceases to exist. D.  For survival of HUF there should be at least one Coparcener and one member. E.   HUF ceases to exist if no coparceners are alive even if one or more members exist and are alive. F.   For PAN purposes HUF date of formation can be either Date of Marriage or the date of Birth of the First child. G.  Karta of HUF can be only a coparcener i.e. female member (Daughter ), Male member, or male lineal descendants. If the coparcener is minor any member can act on his behalf as a manager till he attains majority. H.  Eldest coparcener of HUF becomes Karta on the death of Karta. One can be the karta of any member of HUFs. I.    The Property inherited in-estate by anyone devolves in his/her capacity. It cannot become the corpus of the HUF. if it is treated as corpus it attracts clubbing as a gift to HUF. J.   The Inheritance intestate is governed by the Hindu Succession Act, of 1956. K.  Inheritance by way of testamentary documents ( Gift or Will) will be governed by the Indian Succession Act, of 1925. A Will can be registered or unregistered. L.   Will is revocable several times till the death of the predeceased and last will prevail. Preferably the signature of the doctor & CA is prepared on the Will, the reason doctor can testify the predeceased was of sound mind while signing the will and the CA can testify about the financial particulars.  M. Gift on marriage is excluded u/s 56(2)(x) only if given to an individual. A gift on marriage can be only to individuals and cannot be to HUF as individuals marry not the HUF. Hence gift to HUF in marriage is not covered under exclusion and is taxable if the amount exceeds 50,000/- in aggregate.  N.  HUF can get property through Gift.  The Gift deed to this effect is compulsory and should be accepted and signed by the donee. Registration of Gift deeds is mandatory as per Indian Registration Act 1908. O.  Any Gift to HUF from members though not taxable in the hands of HUF u/s 56(2)(x), but attracts clubbing provision u/s 64 of IT Act. HUF cannot gift anything to anyone though it can accept gifts. P.   HUF property can be received by Specific Will in favor of HUF, if the Testamentary documents don’t specifically mention HUF name it will be treated as the property of the Individual. Q. The HUF initial corpus can be formed by way of a gift from a third party (say ₹.2,50,000/-) and paying the taxes u/s 56(2)(x) at appropriate rates treating it as Income from other sources. R.  The HUF property including accumulated profit can only be distributed on full partition. Partial Partition is not allowed under Income Tax Act though allowed under the Hindu Succession Act. It is mandatory to inform and intimate u/s 171 of the act to AO about the full partition of the HUF. As per the law, the AO will pass a speaking order accepting or rejecting the Partition after allowing a hearing from all the stakeholders of HUF. S.   The Distribution of assets on Full partition or Profits can be in any ratio as decided amongst the members. Such distribution should be a testamentary document if not in equal ratio. T.   While partition of HUF, proper distribution amongst all the members including minor interest has to be safeguarded as per the Hindu Succession Act. U.  HUF members can be up to four generations in perpetuity (only male members, who can be coparceners). Female members (Daughters) can be coparceners but her child cannot be either the member or coparcener of the daughter's father HUF. Fifth-generation members cannot demand partition. V.  First generation (Daughter) can be coparcener and can demand partition of HUF and entitle for HUF property. W. Accumulation of profit adds to corpus hence cannot be distributed without Full partition. The Profits during the year should be distributed and credited to the accounts of the members of HUF and the year of the Income itself so that it doesn’t become the accumulation and property of HUF. X.   To treat any assets as HUF assets, it should be assessed as such. Y.   Member can Give a Loan to HUF or Vice-versa, but such transaction needs to be genuine and cannot be a tool of Tax avoidance. Z.   One can Save a maximum of ₹.2,10,000/- by way of HUF planning.

Discussions to this article

[gurumoorthy ramaswami]

I remember there was a clarification and notification to the effect that

'Women members (coparceners) of HUF can also become Karta of the HUF'

few years ago. Please include the same and throw light on how the succession will happen

[gurumoorthy ramaswami]

You may enlighten on the following as well:

Scenarios on : What if a son who inherits his father's HUF and his sister and mother are coparceners of that HUF

1) Marries a Non hindu (say a sikh/christian/Muslim..) Can his wife become a coparcener/member

2) Can his children become coparceners of that HUF (His children are Hindus because he is HIndu)

3) Can his son take that HUF forward for another 3 generations?

Please enlighen

[CA.Mohammed Lakkadsha]

Yes, women members (coparceners) of a Hindu Undivided Family (HUF) can become the Karta of the HUF. This position has evolved over time through various legal precedents and statutory amendments.

Legal Framework and Precedents:

1. Hindu Succession Act, 1956:

   • Initially, this Act did not recognize daughters as coparceners in the HUF. Only male members were considered coparceners.

2. Hindu Succession (Amendment) Act, 2005:

   • This significant amendment came into effect on September 9, 2005. It granted equal coparcenary rights to daughters, placing them on par with sons. Consequently, daughters became entitled to claim their share in the HUF property.

3. Income Tax Act, 1961:

   • While the Income Tax Act governs the taxation aspects of HUFs, it does not specifically address the position of Karta. The role of Karta is traditionally determined by Hindu Law.

4. Legal Precedents:

   • Sujata Sharma v. Manu Gupta (2015 (12) TMI 1646 - DELHI HIGH COURT): The Delhi High Court, in this landmark judgment, held that a daughter, being a coparcener by virtue of the Hindu Succession (Amendment) Act, 2005, can also become the Karta of the HUF. The court emphasized that gender cannot disqualify a person from becoming the Karta if they are a coparcener.
   • Commissioner of Income Tax vs. G. Sekar (2009 (4) TMI 924 - SUPREME COURT): The Supreme Court observed that the concept of Karta is integral to Hindu Law, and amendments in the Hindu Succession Act could influence who can be a Karta. This case supported the evolving understanding that a woman coparcener could be a Karta.

Conclusion:

In light of the Hindu Succession (Amendment) Act, 2005, and judicial pronouncements such as Sujata Sharma v. Manu Gupta, it is clear that women can indeed become the Karta of an HUF. This change reflects the ongoing progression towards gender equality within the framework of Hindu personal law.

It is advisable for HUFs considering this transition to consult with legal professionals to ensure compliance with all relevant statutory provisions and to address any potential challenges.

[CA.Mohammed Lakkadsha]

1. Marrying a Non-Hindu (Sikh/Christian/Muslim) and Wife's Coparcenary Status:

• Coparcenary Status of the Wife:
  • Under Hindu Law, coparcenary rights are limited to lineal descendants of a common ancestor within four generations. A wife, by marriage, does not become a coparcener; she becomes a member of the HUF.
  • Marrying a non-Hindu does not grant the wife coparcenary rights in the HUF. She can be a member of the HUF, entitled to maintenance and some rights over the HUF property, but not a coparcener.
  • Hindu Marriage Act, 1955: Marriage to a non-Hindu may not be recognized under the Hindu Marriage Act, but it can be solemnized under the Special Marriage Act, 1954. This does not affect the husband's status as a coparcener in the HUF or his children’s rights.

2. Children's Coparcenary Status:

• Coparcenary Rights of Children:
  • The children born to the Hindu son (regardless of his wife’s religion) will be considered Hindus if brought up as Hindus.
  • These children will automatically become coparceners in the HUF by virtue of being lineal descendants of the common ancestor.
  • The Hindu Succession Act, 1956, and subsequent amendments ensure that these children have equal rights in the HUF property.

3. Continuation of the HUF for Three Generations:

• Three Generations Rule:
  • A son can indeed take the HUF forward for another three generations. Coparcenary rights are inherently passed down through male lineage and now include female descendants as well due to the Hindu Succession (Amendment) Act, 2005.
  • As long as the children and their descendants maintain their Hindu identity, the HUF can be perpetuated through subsequent generations.
  • The Mitakshara School of Hindu Law allows an HUF to continue as long as there are coparceners who can trace their ancestry to the common ancestor.

Summary:

1. Wife’s Coparcenary Status:

   • A wife (irrespective of her religion) does not become a coparcener; she is a member of the HUF.

2. Children’s Coparcenary Status:

   • Children of a Hindu son, if brought up as Hindus, automatically become coparceners in the HUF.

3. HUF Continuation:

   • The son can continue the HUF for three generations, provided the descendants remain Hindus and maintain their coparcenary rights.

These interpretations align with current Hindu law and prevailing legal precedents. For specific cases, legal consultation is advised to navigate complexities and ensure compliance with the law.

[gurumoorthy ramaswami]

Thanks for accepting the suggestions and responding. 

Incorporating the same in your article would mitigate doubts and be fool proof as reference point.