Save your Taxes via Hindu Undivided Family (HUF)
What is HUF?
1. Under Hindu Law, a HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. A HUF cannot be created under a contract, it is created automatically in a Hindu Family. Jain and Sikh families even though are not governed by the Hindu Law, but are treated as HUF under the Act.
2. Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act). HUF is a separate entity for the purpose of assessment under the Act.
Who can be KARTA?
1. Senior most MALE co-parcener of the HUF: The Karta is the senior-most male coparcener of the HUF. Even if the Karta becomes aged, infirm, ailing, or even a leper, he may continue to be Karta. Where the senior-most member is not Karta, the next senior male member takes over as Karta.
2. A Junior Coparcener can be Karta The Supreme Court is held that 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.
3. There can be more than one KARTA of a HUF :
4. Only Co-parcener can become Karta: The Supreme Court held that co-partnership is a necessary qualification for the managership of a joint Hindu family.
5. Minor as Karta: In absence of the father, the elder minor son could act as the Karta of the family. Therefore, a minor can be the managing member of a Hindu undivided family
Powers of KARTA
- Managing the affairs of HUF
- Control & become custodian of the finances
- Can borrow money for & on behalf of HUF
- Spend the money for the family & not be accountable for it
- NOT liable to submit an account to anybody
- Can make partition of the family suo moto
- Quantum of partition shall be with KARTA’s liking
- HUF cannot enter into contracts, or form a partnership firm, or representation except through Karta, however, Karta may allow others to represent HUF
- Can Gift away the movable properties of HUF for natural love & affection but within a reasonable limit
- May transfer immovable properties for pious purposes or for the benefit of the family
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o Position of Female in HUF
After the amendment made by Hindu Succession (Amendment) Act, 2005, the daughter can be a coparcener of HUF like the sons of HUF. After her marriage, she becomes a member of her husband’s HUF and continues to be a coparcener of her father’s family. she can also dispose of her share in coparcenary property at her own will.
If a Hindu dies, the coparcener property shall be allotted to the daughter as is allotted to sons. If a female coparcener dies before partition, then children of such coparcener would be eligible for allotment, assuming a partition had taken place immediately before her demise. A widow of a pre-deceased son even though remarried is now eligible for a share in property as the legal heir of the pre-deceased son of the family.
o Female as Karta
W.e.f. 6th September 2005, after amendments made by Hindu Succession (Amendment) Act, 2005 the daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as the son.
Powers of Alienation
The power of alienation cannot be exercised except by Karta the joint family property can be alienated for the following three purposes only:
a. Legal necessity (Apatkale)
b. Benefit of the estate of the family (Kutumbarthe)
c. Acts of Indispensable duty (Dharmamarthe)
o Position of Karta
The Karta can alienate the joint family property with the consent of the coparceners even if none of the above exceptional cases exist and if all the coparceners are adult, the alienation is binding on the entire joint family.
Legal Necessity (Apatkale)—
The cases of legal necessity can be so numerous and varied.
Some of the instances of a necessity maybe
- outstanding revenue dues,
- ancestral debts,
- marriage expenses,
- discharge of outstanding decrees,
- personal necessities arising from poverty,
- sickness, incapacity for work, etc., legal expense in defending estate,
- litigation to protect estate, etc..
Property sold and mortgaged for an unlawful purpose and immoral purposes cannot be said to be legal necessity.
The benefit of Estate–
It includes anything which is done for the positive benefit of the joint family property.
Indispensable Duties –
This term implies the performance of those acts, which are religious, pious, or charitable.
How is HUF taxed?
HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members.
Deductions under section 80 and other exemptions can be claimed by the HUF in its income tax return.
HUF can take an insurance policy on the life of its members.
HUF can pay a salary to its members if they contribute to its functioning of the HUF. This salary expense can be deducted from the income of HUF.
Investments can be made from HUF’s income. Any returns from these investments are taxable in the hands of the HUF.
A HUF is taxed at the same rates as an individual.
Both HUF and Karta in an Individual capacity (as well as other members of the HUF) can claim a deduction under section 80C. Furthermore, the income of the HUF can be invested by the HUF and will continue to be taxed in the hands of the HUF.
