HINDU UNDIVIDED FAMILY

The concept of HUF (Hindu Undivided Family) has been prevalent for generations. It is a unique way of managing wealth, assets, and liabilities within a family structure. A HUF is a separate legal entity created by the members of a family who are lineally descended from a common ancestor.

Who can form a HUF:

Only Hindus can constitute a HUF and take benefit of special status under the Income Tax Act, 1961. As per Hindu Law, the following can form a HUF:

  1. A person who is a Hindu by religious.
  2. A person who is a Buddhist, Jain or Sikh by religion; and
  3. Any person who is not a Muslim, Christian, Parsi or jew by religion.

Formation of HUF:

A HUF is formed by a Hindu family, which includes not only the male members but also their wives and children. The family must have a common ancestor, who may be alive or deceased. The formation of a HUF is a simple process, which involves the following steps:

  • The first step in the formation of a HUF is to identify the common ancestor from whom all the members of the family are lineally descended.
  • Once the common ancestor is identified, a deed is executed to establish the HUF.
  • After the execution of the deed, the HUF must obtain a PAN card in its name. To conduct necessary financial transactions and file income tax returns.

Methods for creating a HUF:

A HUF is automatically created at the time of marriage or through birth in a Hindu family. However, there are several ways in which a new HUF can be created. The most common ways are:

  1. Creation by partition
  2. Creation by will
  3. Creation by join labour
  4. Creation by blending of individual property with HUF character.
  5. Creation by gift
  6. Creatin by reunion

Unique features of HUF:

HUF has several unique features that make it an attractive option for managing family wealth. These features include:

  • Separate legal entity: A HUF is separate from its members to carry on activities on its own. It can own property, enter contracts, and conduct financial transactions in its own name.
  • Continuity of existence: A HUF has a perpetual existence, which means that it continues to exist even if its members die or are replaced by new members.
  • Limited liability: The liability of the members of a HUF is limited to the extent of their share in the family property. They are not personally liable for the debts of the HUF.
  • Tax benefits: HUF is taxed separately from its members. It is eligible for all the tax benefits available to an individual, such as exemptions and deductions.

Benefits of HUF:

A HUF provides several benefits to its members, which include:

  • Helps in the efficient management of family wealth and ensures smooth transfer in the future.
  • HUF is eligible for all the tax benefits like exemptions and deductions available to individuals, which can result in significant tax savings.
  • Provides protection to family assets from creditors and other claimants by ensuring that family assets are not easily dissipated or divided.
  • Provides a convenient way of planning for succession as the property can be passed down to the next generation without the need for a will or other legal formalities.

In simple words, a person who is not a Muslim, Christian, Parsi or jew by religion would be a Hindu. The following are special points to be noted in the case of HUF:

  1. The Karta can function in a dual capacity and can claim remuneration and other benefits from the HUF
  2.  HUF can consist of small or nuclear joint families and can own assets in its name. Further, it shall be assessed for its earnings as a separate entity, distinct from the individuals or the main joint family.
  3.  A HUF (Hindu Undivided Family) can be formed with just one male member, and it is also possible for a HUF to consist only of female members.
  4. Income tax shall still be assessed in the hands of HUF even if the HUF is left with only one surviving coparcener.
  5. In case, a Member of a HUF is carrying on the activity of trading, any other earnings in their personal capacity, shall be considered as his/her income and not the income of HUF even if the capital has been brought out of funds borrowed from the HUF funds.
  6. The fees and salary earned by Karta as director of the company or as a partner in his representative capacity, it may be considered his individual income.

Who can be a HUF Coparcener with effect from 9th Sept 2005, i.e., after Hindu Succession (Amendment) Act, 2005:

After the enactment, any daughter, including a married daughter, can be a coparcener of the Hindu Undivided Family (HUF) in addition to the son. The amendment act applies to all daughters, whether married or unmarried, and it is applicable to daughters who were born before or after the enactment of the amendment and it is applicable to all coparcener-related issues, including inheritance and partition of assets.

Principles with regards to throwing of property in common hotchpot of HUF

Under Hindu law, a Hindu Undivided Family (HUF) is treated as a separate legal entity and the property of the HUF is owned jointly by all the members of the family. When a member of the HUF wants to throw his or her property into the common hotchpot of the HUF, certain principles apply. The following are the principles led down by the courts:

  • The member must have a share in the HUF property: The member throwing the property into the common hotchpot must have a share in the HUF property. This means that he or she must be a coparcener or a member of the HUF.
  • The property must be thrown unconditionally: The property must be thrown into the common hotchpot unconditionally and without any reservation or condition. The member cannot attach any conditions to the property or retain any control over it after it is thrown into the common hotchpot.
  • The property must be thrown with the intention to benefit the HUF: The member must throw the property into the common hotchpot with the intention to benefit the HUF and not for his or her personal benefit.
  • The other members of the HUF must give their consent: The other members of the HUF must give their consent to the property being thrown into the common hotchpot. The consent can be expressed or implied.
  • The property becomes the property of the HUF: Once the property is thrown into the common hotchpot, it becomes the property of the HUF and is jointly owned by all the members of the family.

Disposal of Property by Hindu Female:

Notwithstanding any contained in the HUF Act or any other law for the time being in force, as property capable of being disposed of by her by testamentary disposition. Hence, the property can dispose of at free will and wish.

Conclusion:

HUF is a unique way of managing family wealth along with several benefits to its members, such as tax savings, protection of family assets, and efficient management of wealth. It is a legal entity with a perpetual existence and limited liability. A HUF is a useful tool for succession planning and ensuring the smooth transfer of family assets to future generations. The Hindu Succession (Amendment) Act, 2005, has removed the discriminatory provisions in the original act and provided equal rights to daughters in the HUF