There is a misconception among people that an HUF can come into

existence only if it owns any assets. An HUF and HUF assets are two
different concepts. It is not necessary that an HUF should have an asset
for coming into existence. There may be situation where an HUF exists
on the basis of existence of persons but it may not own any asset. This is
because Hindus get joint family status by birth and joint property is simply
an adjunct to the joint family. Let us discuss various aspects related
owning and succession of assets with special reference to HUF

How can an HUF acquire its assets?

An HUF can acquire its assets on partition of HUF of ancestors of its
coparceners. Karta of an HUF can also receive assets by way of gifts from
non family members provided the donor gives specific direction that the
gift is made for the benefit of the HUF. An HUF can also acquire assets
under a Will thorough a specific bequest in favour of the HUF by the
deceased. Even members of the HUF can also throw their personal
property in the common hotchpot of the HUF. However any income
arising from such transferred asset shall be clubbed with the income of the
donor till the assets of the HUF are distributed. After distribution of such
HUF property the share of the HUF property which is allotted to the wife
of the transferor will still continue to be clubbed with the income of the
transferor.

Since members of the HUF are treated as relative of the HUF, the gifts
received from the members will not be taxable under Section 56(2) at the
time of receipt of the gift but the gifts received from non members shall
become fully taxable if the aggregate of all gifts received by the HUF
during the years exceeds Rs. 50,000. However the gifts upto Rs. 50,000/-
in a year received by an HUF from non members are fully exempt under
Section 56(2). In case of gifts through cheque or movable assets, no
registration is required to be done but in case of gifts of immovable
property such gift needs to be registered and adequate stamp duty is also
required to be paid.

Succession and transfer of HUF property

The coparceners of the HUF cannot gift or transfer their rights in the assets
of the HUF during their lifetime but are entitled to bequeath their share in
the assets of the HUF through a Will. Prior to amendment of the Hindu
Succession Act, the rights of the coparcener in the HUF property used to
devolve on the surviving members of the HUF but now the situation is
changed. In case no Will is made by the coparcener, the share of the
deceased in the HUF property passes to the successors as mentioned in
class 1 of the first Schedule of the Hindu Succession Act, 1956. The assets
acquired by such successors become their absolute property which they
are entitled to dispose off the way they want.
Partition of the assets of the HUF property

Since all the coparceners have right in the assets of the HUF so the Karta
cannot dispossess any coparcener of his right. In case the coparcener
demands partition of the assets of the HUF, the karta has to give his share
to such coparcener from the assets if the HUF. Though as per the Hindu
Law partial partition of the HUF either as regards the assets or as regards
members is fully valid but the income tax laws do not recognise such
partial partition of the assets of the HUF. The income tax laws require that
partition of HUF should be full as regards all the assets as well as in
respect of all the members. So unless there is full partition of the HUF,
the income arising in respect of the partly distributed assets shall be
continued to be taxed in the hands of the HUF.

TAX BENEFITS TO HUF

Being a separate tax entity an HUF enjoys certain tax benefits alongside the
individual also claiming it which I am going to explain this article.

Tax benefits in respect of income

Being a separate tax entity it enjoys a separate basic tax exemption of 2.50
lakhs. This basic exemption is available to all the HUF whether resident or non
resident for tax purposes. HUF can invest in various assets like house property,
shares, mutual funds in its own name. As HUF can own and transact in shares
and securities, it can avail the basic deduction of Rs. one lakh in respect of long
term capital gains arsing on sale of listed share and units of equity oriented
units of mutual funds under Section 112A from current year. HUF can also carry
on business of its own to generate its income.
Owning of a residential house and benefits of owning house in the name
of HUF

An HUF can own residential house and can avail home loan to buy a residential
house property and avail the tax benefits in respect of repayment of home loan
under Section 80 C upto Rs. 1.50 lakhs along with other eligible items. As per
present income tax laws a taxpayer can own and have only one self occupied
property. In case more than one properties are owned and self occupied, the
tax payer has to chose one of the property as self occupied and the rest are
then are treated as deemed to have been let out. For the deemed to have been
let out property/ies, the tax payer is required to offer notional rent for tax. Please
note notional rent is not nominal rent but it is the market rent which the property
is expected to fetch. So your HUF can have an additional property as self
occupied for which you do not have to pay any tax as the value of self occupied
property is taken as nil.

An individual or HUF can claim exemption under Section 54F for long term
capital gains on sale of any asset other than a residential house by investing in
one residential house property within specified period. However the tax benefit
can not be claimed if the tax payer has more than one residential house on the
date of sale of such asset other than the one being acquired to claim the
exemption. So in order to avoid applicability of this restriction under section 54F
the additional house can be owned in the name of an HUF.
Benefits in respect of certain expenses/investments

Like an individual an HUF is also allowed to claim tax benefits for certain
payments made. The HUF can pay life insurance premium on the life of its
members and clam the tax benefits under section 80C. So in case your limit of
Section 80 C of Rs. 1.50 lakhs gets exhausted, you can pay the life insurance
premium on the life of any member of HUF and claim it here.

Though HUF is not allowed to open a PPF account in its name, it can still claim
the tax benefits for making contribution in the PPF account of its members. The
HUF can also make investments in Equity Linked Saving Schemes (ELSS), tax
saving fixed deposits and in National Saving Certificates.
Due to ever rising premiums of health insurance even the present limit of Rs.
25,000/- under Section 80D is insufficient for buying health insurance for whole
of the family. In such situation, your HUF can come to your rescue. You can
pay health insurance premium of some of your family members from HUF and
claim the benefit in HUF separately upto Rs. 25,000/-. If it has a member who
is senior citizen the limit goes upto Rs. 50,000/-.

The HUF however can not claim deductions for tuition fee paid for any of its
members or deposit made under Senior Citizen Saving Scheme or any
contribution made towards National Pension System (NPS) account or to
Senior Citizen saving Scheme or any pension plan.

A resident HUF can claim deduction under Section 80 DD for any of its
physically disabled member for Rs. 75,000/- if HUF has incurred any
expenditure for medical treatment of such member or has bought a life
insurance for maintenance of such member. The amount of deduction available
goes up to Rs. 1,25,000/- if the member is suffering from severe disability. This
deduction is available irrespective of the amount spent by the HUF.

A resident HUF can also claim deduction for treatment of some specified
disease for any of its dependent member under section 80 DDC upto
Rs. 40,000 and which goes up to Rs. 1 lakh if the member is senior citizen.

LEGAL ASPECTS OF HUF (HINDU UNDIVIDED

FAMILY)
This article deals with the legal aspect of an HUF.
,,
Who can have an HUF and how it comes into existence?

Since the word “Hindu” is part of it, only a person who is Hindu can have an
HUF. The word Hindu here has been used here in liberal way and includes the
person of Jain, Sikh and Buddha religion. So a Muslim, Pareses, Jews and
Christian can not have an HUF. An HUF can have four generation of
descendents from a common ancestor as its members. An HUF is creation of
law and can not be created by acts of the persons.
What is the difference between a coparcener and members of the HUF
Any person who takes birth in the family is treated as coparcener and the one
who comes in the family due to marriage is a pure member. Moreover a person
who is adopted into the family is also treated as a coparcener. Prior to
amendment in the Hindu Succession Act, 1956 in 2005 only male members
could become coparceners and daughters would only become a member. So
now an HUF will come into existence as soon as any child is born to a Hindu
couple. However husband and wife themselves can constitute an HUF if any
ancestral property is received from the ancestors of the male. So fresh HUF
can only come into existence after birth of a child in the family.

All the coparceners are members of the HUF but vice versa is not true. All the
members including coparceners have a right to be maintained out of the funds
of the HUF. The widow and children of a deceased coparcener have the right
to be maintained out of the HUF property. It is only the coparcener who has the
right to ask for partition of the HUF assets to claim his/her share. The pure
members do not have the right to ask for a partition but will get their share in
the HUF property as and when the partition takes place. As daughter is treated
as a coparcener after the amendment in the law, she can also ask for partition
of the assets of the HUF.

How the affairs of the HUF are managed

The HUF is managed by a Karta who is usually a senior most male member in
the family. In case the senior most male members is not willing to act as Karta,
any other coparcener can be appointed as Karta, by the family, to manage
affairs of the HUF. A Karta can appoint any person to act as a Manager of the
HUF to manager affairs of the HUF who need not be a member of the HUF.

A widow cannot act as Karta as she is not a Coparcener. Likewise a minor

cannot be appointed as Karta as he is not competent to contract as per the
provisions of Indian Contract Act, 1872. However a widow can act as Karta
representing the minor. After marriage of the daughter the daughter continues
to remain the coparcener of her father’s family and at the same time becomes
member of her husband’s HUF. As per a Delhi High Court decision in the case
of Mrs. Sujata Sharma versus Shri Manu Gupta delivered rendered in 2015 ,
even a daughter can act as a full fledged Karta of his father’s HUF. However
since she is not a Coparcener of her husband’s family, she can not become a
Karta there.

Residential status under the Income Tax Laws

Since your income in India is taxed based on your residential status, it is

important for us to understand how the residential status of the HUF is
determined as it is not a physical person. An HUF is treated as non resident of
India if and only if whole of the control and management of the affairs of HUF
is situated outside India. So even if small part of management remains in India
it will become resident for tax purpose. It is not necessary that for determining
the control and management of the HUF, the physical presence of the Karta is
to be taken into account. An HUF can be resident of India in a situation where
the Karta is residing outside India for the whole years but the affairs of the HUF
are managed by a manager under direction and guidance of the Karta.