Income tax returns (ITR) filing: All you want to know about Hindu Undivided Family (HUF) property and more

There is a misconception that for an Hindu Undivided Family (HUF) to exist, it should own some assets. But an HUF and HUF property are two different concepts. There may be a 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 of persons in the family, but joint property is simply an adjunct to the joint family. Let us discuss the aspects related to 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 or 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, through a specific bequest in favour of the HUF by the deceased. Even members of the HUF can 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 member 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 relatives of the HUF, gifts received from them are not taxable under Section 56(2)(x) of the Income Tax Act, at the time of receipt. But gifts received from non- members are fully taxable if the aggregate of all gifts received by the HUF, during the year, exceeds Rs 50,000. However, gifts up to 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, but gifts such as immovable property need to be registered and adequate stamp duty also must 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, 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 on 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 assets of the HUF property
Since all the coparceners have right in the assets of the HUF, so the Karta cannot disentitle any coparcener of his right. In case the coparcener demands partition of the HUF’s assets, the karta has to give the coparcener his share from the assets of the HUF. Though, as per the Hindu Law, part distribution of some of the assets of the HUF, which is called as partial partition of the HUF, either in respect of certain and not all assets or in respect of some of the members is fully valid, but the income tax laws do not recognise such partial partition of the HUFs’ assets. 

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The income tax laws require that partition of HUF should be full. So in case of partial partition of some assets, the income in respect of such assets, though received by the member/s who are allotted such assets, will still be required to be clubbed and included in the income of the HUF.

Balwant Jain
(The writer is an investment and tax expert)
Source: DNA Money