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A major part of Indian society comprises the Hindu Society. A Hindu Undivided Family is a part of the Hindu society and represents a common ancestor having all his lineal male descendants, their respective wives and children including daughters too. Daughters are also considered as the descendants of the family and so are the wives of the sons.

More commonly called the Hindu Joint family, a Hindu Undivided Family is considered more as a separate entity under the provisions of section 2(31) of the Income Tax Act,1961.

Requirements Of The Existence Of An HUF

  • ⦿ Families can only form HUF and a single member cannot.
  • ⦿ Even in the case of the death of the sole male member, a joint family continues to exist in the hands of the widows.
  • ⦿ Two male members are not required to form a Joint Family, even one male member is enough.
  • ⦿ It is not necessary that a nucleus or Joint Family Property is required for the existence of a Hindu Undivided family.
  • ⦿ The senior-most family member acts as the KARTA of the family, but a younger member can also act as the one by taking consent from the other members.
  • ⦿ The wife cannot become KARTA in normal situations, but if the coparceners are incapable of managing the HUF, then the wife can be KARTA.
  • ⦿ The following types of property cem under Joint Family Property:-
    • Ancestral property
    • Property that was allotted on partition
    • Any property acquired with the help of the Joint family property
  • ⦿ The following types of property cem under Joint Family Property:-
    • A family of widow mother and major or minor sons
    • Family of Husband and wife with no children
    • A family of two widows of expired brothers.
    • A family of two or more brothers
    • A family of nephew and his uncle
    • Family of mother, son and son’s wife
    • A family of a male and his deceased brother’s wife

How to save Tax in a HUF?

A HUF is quite beneficial when it comes to tax savings. To calculate the income of a HUF, one has to ascertain the income under different heads of income such as:-

  • ⦿ If the funds of a HUF are invested in a company, then the remuneration that the member receives as a director or partner is considered as the income of the HUF.
  • ⦿ If the member is giving services to someone or some company, his remuneration is considered as his arsenal income.
  • ⦿ If the remuneration is paid to the KARTA or other member by the HUF for the services rendered by any one of them, if the income is genuine, the remuneration is deductible from the income of HUF.

What Type Of Income Is Not Taxable In HUF

  • ⦿ Any member’s self-acquired property which has been converted or transferred into the joint family property, income from such source is not taxable.
  • ⦿ Although the income coming from an impartial estate belongs to the family, it is taxable in the hands of the estate holder and not the family.
  • ⦿ Personal incomes of members are not part of the family income and hence nontaxable
  • ⦿ The income received from the individual property of the daughter is not taxable.

Tax compliances of HUF

An HUF is capable of tax deductions available under chapter VIA and the tax slab rates are the same as that of any individual taxpayer. Also, any HUF is liable to pay an Alternate Maximum Tariff if the tax to be paid is less than 18.5 percent of “Adjusted Total Income”.

ITR Filing in HUF

In a HUF, all the tax deductions and exemptions can be claimed under section 80C. All the HUFs have their separate PAN apart from the PAN cards of the individual members.

What Are The Documents Required For Filing ITR by HUF

There are no requirements for filing ITR in a HUF. Also, no documentation is required to be attached. This is applicable in manual as well as e-filing. However, these documents should be secured safely so that they can be produced before the Income Tax Department whenever required.

How To Compute Tax

Fro any Hindu Undivided Family the tax is computed as:-

Income Tax liability
1. Upto Rs. 2,50,000 Nil
2. Between Rs. 2,50,001- Rs.5,00,000 5% of income in excess of Rs. 2,50,000
3. Between Rs. 5,00,001 - Rs. 10,00,000 Rs.12,500 + 20% of income in excess of Rs.5,00,000
4. Above Rs. 10,00,000 Rs.1,12,500 + 30% of income in excess of Rs.10,00,000

b) In case of an HUF opting for the new tax regime u/s 115 BAC

Income Tax liability
1. Upto Rs. 2,50,000 Nil
2. Between Rs. 2,50,001 – Rs.5,00,000 5% of income in excess of Rs. 2,50,000
3. Between Rs. 5,00,001 – Rs.7,50,000 Rs 12500 + 10% of income in excess of Rs. 5,00,000
4. Between Rs.7,50,001 – Rs. 10,00,000 Rs. 37,500 + 15% of income in excess of Rs. 7,50,000
5. Between Rs. 10,00,001 – Rs.12,50,000 Rs. 75,000 + 20% of income in excess of Rs. 10,00,000
6. Between Rs.12,50,001 – Rs.15,00,000 Rs. 1,25,000 + 25% of income in excess of Rs. 12,50,000
7. Above Rs.15,00,000 Rs. 1,87,500 + 30% of income in excess of Rs. 15,00,000

Applicable Surcharge

  • ⦿10% of the applied income tax in cases where total income falls in the range of Rs. 50,00,000 - Rs. 1,00,00,000.
  • ⦿15% of applicable income tax in cases where total income falls in the range of Rs. 1,00,00,000 - Rs. 2,00,00,000.
  • ⦿25% of applied income tax in cases where total income falls in the range of Rs. 2,00,00,000 - Rs.5,00,00,000.
  • ⦿37% of applicable income tax in cases where total income is more than Rs. 5,00,00,000 The tax liability is calculated as per the given table and by further adding the surcharge and health and education cess at 4%.

Advantages Of Forming HUF

  • ⦿ Being a separate entity, a HUF enjoys a basic tax exemption till Rs. 2,50,000. Also, the HUF can invest in its own business to generate income and can also invest in shares and mutual funds.
  • ⦿ A HUF can own a residential house without the obligation of paying tax. Also, it can apply for a home loan for purchasing a residential property. By doing this, it can save up to Rs. 1,50,000 under section 80C of the Income-tax loan Repayment.
  • ⦿ A HUF can invest in tax-saving fixed deposits and Equity-linked Savings Schemes to earn tax benefits of up to Rs. 1,50,000 under section 80C. Also, a Huf can claim deductions for the amount deposited by HUF in the respective PPF account of its members.
  • ⦿ HUFs can claim a deduction of Rs. 25,000 per year on premiums paid for Health Insurance for the family under Section 80C.

Disadvantages Of Forming HUF

Apart from the various benefits, there are some disadvantages of the HUF too:-

  • Problems in managing

    As the HUF can accommodate a larger number of members, therefore there can be problems in managing these. Also, any decision regarding the sale of an ancestral property cannot be taken without the consent of all the members.

  • Problems in closing down

    An HUF can be closed down with the due consent of its members. However, as per the partition, all the assets need to be distributed equally among the members, which can create big havoc.

  • The current trend of society is making it impossible

    Nowadays, families are following the nuclear family trend, instead of a joint family. More and more people are opting for separations and nobody is ready to live under any type of constraint. They are ready to pay more tax instead and stay separately.

  • Partitions induce burdens

    After partitions, the income from the property which was partitioned is taxed as the individual income of the member. So, if the member forms a new HUF, the income of the property is taxed in the hands of the new HUF.

Conclusion

The present social structure has been disrupted and people are opting for nuclear families. However, despite having several benefits, people are overlooking the monetary gains and focussing on their personal aims.

We, at https://filinglounge.com/, are ready to help you in any matter related to your HUF. Kindly visit our website https://filinglounge.com/enquiry.php and fill up the inquiry form. Our executives will give you a call soon. Also, please follow our Facebook page for more information.

Frequently Asked Questions

1. Can HUF receive Gifts?

Yes, HUf can receive gifts from members as well as outsiders. However, the gifts received from outsiders are taxable over the limit as per section 56(2)(vii) and gifts from family members are covered under clubbing provisions of 64(2).

2. Can a HUF give gifts?

Yes, HUF can give gifts within a reasonable limit.

3. Who is eligible to use ITR form?

Any HUF who is not able to file the ITR-1 Form or who is not having any income under the head” Profits or Gains of business or profession” can use the return form.

4. Who is a KARTA?

A KARTA is ahead or the senior-most member of the Hindu Undivided Family.

5. Which states of India do not follow HUF?

Kerala does not follow the rule of HUF.it was abolished by the JOint family system act,1975 by the Kerala state legislature.

6. Is it mandatory for the HUF to file a return?

Yes, it is mandatory for every HUF to file for the return of income if the total income exceeds the maximum amount which is not chargeable to tax.

7. How many coparceners are required for the formation of HUF?

A HUF can be formed with just 2 members out of which 1 is a coparcener but to be taxed as an entity, there must be a minimum of 2 coparceners.

8. Is it necessary that the HUF always have residents as members?

No, it isn't necessary that the HUF is a resident of India. If the affairs of the HUF are managed from outside India, the HUF would be a non-resident.

9. If the KARTA dies, who is the next KARTA?

On the death of the Karta, the eldest member of the family or the eldest son of the LKARTA takes over the control, even if the deceased’s wife is still alive.

10. Can a daughter claim the right of inheritance if her father passed away before the amendment of the law in 2005?

No, the daughter and the father need to be alive on the date of the amendment for the benefit of inheritance, irrespective of whether she was married or not. Hence, if the father is not alive, the daughter cannot claim the property.