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The Hindu Succession Act

The term 'Hindu Undivided Family' has not been defined under the Income Tax Act? It is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. This means your membership into a HUF does not come from a contract but from your status. A HUF cannot be formed by a group of people who do not constitute a family; lineal descendents with a common ancestor is a must. In Maharashtra, unlike other states, even married daughters are recognised as HUF members. Even though Jain and Sikh families are not governed by the Hindu law, they can still be treated as a HUF. A HUF consists of:


The karta has to be the oldest male in the family. If he passes away, his wife cannot become the karta. His eldest son will take his place. If he chooses not to, he can give up his right and the next son in line can take his place.


This is what all the male members are referred to as. A Hindu coparcenary includes the sons, grandsons and great-grandsons of the holder of the joint family property. By virtue of their birth, they acquire an interest in the property.


The female members are simply called members.

Why is it important?

Under the Income Tax Act, a HUF is treated as a separate entity for the purpose of assessment. From this stems its importance.

This project deals with the various aspects relating to a Hindu Undivided Family and its income tax assessment. [1] 



The Hindu Succession Act 1956 brought in equal right for the daughter and also for the son in the individual property of the father and also equal share in father's share in the joint family property.

If in a joint family there is a karta, wife, two sons and two daughters, the share will be as follows:

father as the karta will get one third at the time of the partition of joint family on the date of death among coparceners, which included only father and sons. Out of one third shares, his widow and all the four children would get one fifth each, so that each son got one third on deemed partition and one fifth on succession, adding up to two-fifth share, while his widow and daughters would get one fifteenth each, the son getting six times the share of his sister or mother in the joint family property. A major result of the present Amendment is that the right of the daughter is the same as that of the son in the Hindu joint family property. She gets a share equal to her brother's on deemed partition on the death of her father. The amendment has come into force on September 9, 2005. As for the tax impact, tax law will have to follow this law as regards any fallout of such change in succession for income-tax and wealth tax purposes and in recognising joint family partition under Section 171 of the Income-tax Act [2] 

Position of Females after amendment in HAS, 1956 in 2005

After amendment in HAS, daughter including married treated as coparcener in joint family property with the same birth rights as son do share- to claim partition and to become Karta also sharing the liabilities.

HAS does not touch separate property (sec 8) only ancestral and joint family property are amended. In Section 8 the list of class 1 heirs is broaden. Further the act makes the hiers of pre-deceased sons and daughters equal by including heirs up to 2 generations of children of pre-deceased daughters.

Section 23 of HSA was deleted.

Section 24 was deleted. It dealt with remarriage, now widow can inherit previous husband’s property.

Every state has different law to inheritance of agricultural land. The amendment wiped out in consistency in law relating to inheritance of agricultural land. HAS now is applicable to all states in similar fashion. Now woman (married or unmarried) can inherit agricultural land.

Relation between Section 6 of HSA, 1956 and Income-Tax Act, 1961

Assessment will continue to be framed on the HUF as death of coparcener does not dissolve or disrupt the HUF.

The interest of the deceased coparcener is determined by assuming notional partition of HUF immediate before his death. Since the partition is notional and not real and since its only function is to determine the interest of his heirs which they succeed to the deceased coparcener’s share, there is not question of any proceeding for partial partition under section 171 of IT act.

The Supreme court in Maharani Rai Lakshmi Devi Case [3] held that though u/s 6 of HAS there may be division of share of HUF on the death of Karta this share cant be excluded from the assessment of HUF till an order u/s 171 of IT Act is passed. Partition Under Income Tax is governed by Section 171 and HAS can not override this provision.



HUF's right to receive gifts

In Sukhlal Bhanwarlal (HUF) v. CIT [4] , the Tribunal was held not right in holding that the assessee, being a Hindu undivided family, could not receive the gifts. In that case, the matter was remanded to the Tribunal to decide the point of fact whether the gifts as such as alleged were received by the assessee HUF or not.

Gifts out of ancestral property by a Mitakshara karta

Movable property

Although sons acquire by birth rights equal to those of a father in ancestral property both movable and immovable, so far as movable ancestral property is concerned, a gift out of affection may be made to a wife, to a daughter ar.d even to a son, provided the gift is within reasonable limits. At the same time, a gift, for example, of the whole or almost the whole of the ancestral movable property cannot be upheld as a gift through affection [5] . If the gifts are of excessive amounts and are not given for love and affection, these may be termed as voidable and not void which could be challenged by the sons, but not by a third party.

In CITv. Dwarka Das & Sons [6] , a cash gift of Rs. 5,000 by the karta out of HUF property made to a stranger has been held not to be invalid as the same was within reasonable limit.

Immovable property

So far as immovable ancestral property is concerned, the power of gift is much more circumscribed than in the case of movable ancestral property. A karta has power to make a gift within reasonable limits for “pious purposes", i. e., for charitable and/or religious purposes, or to a daughter in fulfillment of an antinuptial promise, etc. But the rule is firmly established that a karta has no power to make a gift of ancestral immovable property to his wife to the prejudice of his minor sons [7] .

In CIT v. K.N. Shanmuga Sundaram [8] , gifts of a reasonable portion of the joint family immovable properties to minor daughters by their father were held to be valid notwithstanding the fact that the gifts were made before their marriage. Even within the permissible limits, the power to make such gifts may be exercised by the karta. No other member of the family can do it

At the same time, a karta cannot make a gift to his minor sons or in favour of his daughter-in-law. Thus, a gift by a Jat Sikh (Karta) to his son of the ancestral property is not valid so as to attract the provisions of the gift-tax Act, 1958.

While a gift to a member of the family is merely voidable, a gift to a stranger is void Similarly, where the gift is found to be not of a reasonable proportion and within the permissible limits, the same would be void ab initio, a gift of immovable property of the value of Rs. 4,00,000 by the karta to his wife has been held to be void and ineffective in law.

In Balchand Malaiya (HUF) v. CWT [9] , the Tribunal was held justified in holding that the gift of almost the entire assets of the HUF by the karta in favour of his five sons (two major alia three minor) was void.

In R.C. Malpani v. CIT [10] , it has been held that gift of an immovable property belonging to the HUF by its karta to his wife is voidable and not void. Income from such property cannot be assessed in the hands of the HUF.

Gift of undivided coparcenary interest

A coparcener cannot gift any undivided interest in the coparcenary property. The reason as to why a coparcener is not entitled to alienate his undivided interest in the coparcenary property by way of gift is that an individual member of the ioint Hindu family has no definite share in the coparcenary property. B an alienation of his undivided interest in the coparcenary property, a coparcener cannot deprive the other coparceners of their right to the property. The object of this strict rule against alienation by way of gift is to maintain the jointness of ownership and possession of the coparcenary property. It is true that there is no specific textual authority prohibiting an alienation by gift and the law in this regard has developed gradually, but that is for the purpose of preventing a joint Hindu family from being disintegrated. The rigour of this rule against alienation by gift has been to some extent relaxed by the Hindu Succession Act, 1956. Section 30 of that Act permits the disposition by way of will of a male Hindu in a Mitakshara coparcenary property.

When it is said that a gift of an undivided share is void it does not mean that it is void only in the sense that it is not binding on the other coparceners and not void in the sense that it is a nullity.

It is, however, a settled law that a coparcener can make a gift of his undivided interest in the coparcenary property to another coparcener or to a stranger with the prior consent of all other coparceners. Such a gift would be quite legal and valid. In taking the above view, the Supreme Court has affirmed (though on different ground)

In the facts of the Supreme Court case, it has been held that although the gift was ostensibly in favour of the brother, but 'really the donor meant to relinquish his interest in die coparcenary in favour of the brother and his sons. The gift was, therefore, valid construing the same as renunciation or relinquishment by the donor of his interest in the coparcenary, and, accordingly, the consent of the other coparceners was immaterial.

In view of the above Supreme Court ruling" the decision in CED v. Estate of Late M. V.K. Papa Rao [11] is not accurate on the point. The provisions of section 30 of the Hindu Succession Act, 1956, are confined only to testamentary dispositions and do not cover dispositions by way of gifts inter vivos.



Income tax and HUF

Under the Income Tax Act, a HUF is treated as a separate entity for the purpose of assessment. From this stems its importance. However, the income of a joint Hindu family can be assessed as the income of a HUF Hindu only if the following two conditions are satisfied:

There should be a coparcenary.

There should be joint family ancestral property.

Common Property includes following:

Ancestral Property [12] 

Assets created out of income of ancestral property [13] 

Converted property- when individual property is converted into HUF property [14] 

Assets created out of property in 3. [15] 

Gifts, received by HUF

In the following cases the income of ancestral property is taxable as income of HUF:

Family of widow, mother and sons.

Family of husband and wife without any child.

Family of two widows of deceased brothers

Family of two or more brothers

Family of uncle and nephew

Family of mother, son and son’s wife

Family of male and his bro’s wife.

Which income is regarded as HUF income?

There are five heads of income:


Profits from business or profession

Income from house property

Capital gains

Income from other sources

Since the HUF is a separate entity, it can earn income from all the above except income from salary. All income that arises on the investment of the HUF's funds and utilisation of its assets is regarded as income and is separately assessed and taxed.

How is it taxed?

Though the HUF is taxed as separate entity, the tax slab which is applicable to an individual is applicable here too. It also enjoys the Rs 1,00,000 deduction under Section 80C. All the income tax slabs and deductions and exemptions available to individuals are also available to the HUF. [16] 

An example: Let's take the case of Anil Shah. He is a salaried individual but his family runs a business and owns a lot of property. Hence, they formed a HUF. Anil will be individually taxed on his salary and all the tax breaks and deductions and exemptions will be applicable to him. The HUF earns money from the business as well as rent from renting out the properties. The HUF will be taxed according to the various tax slabs and all the exemptions and deductions will also be available to it. Let's say after paying the taxes, the HUF has a lot of profit. This profit can be divided to all the members and it will be totally tax-free in their hands since the tax has already been paid by the HUF. [17] 

HUF as a taxable entity

On a conjoint reading of section 2(31) and section 4, it can safely be stated that a Hindu undivided family is a taxable entity for the purposes of charge of income-tax under the 1961 Act.

Ordinarily, HUF is a taxable entity but, on or after 1-12-1976, no assessment possible on a HUF in Kerala State. It is pertinent to note that the enactment of the Kerala Joint Hindu Family System (Abolition) Act, 1975, has abolished the joint family system among the Hindus in the State of Kerala. That Act has been brought into force on and with effect from 1st December, 1976. By virtue of the provisions of the said Act, the members of a Hindu undivided family holding coparcenary property as on 1-12-1976 shall be deemed to he holding such coparcenary property as tenants-in-common as if a partition had taken place among all the members of that Hindu undivided family. In that view of the matter, it is not permissible or open to the Income-tax Department to continue to make assessment In the status oftl1e Hindu undivided family on or after 1-12-1976 so far as the Kerala State is concerned [18] .

‘Total income’, for charging tax on specified HUFs

For applying a higher rate of tax in the case of a specified HUF, for assessment years 1974-75 to 1996-97, it is necessary that at least one member of the Hindu undivided family should have 'total income' exceeding a specified sum. For this purpose, the expression 'total income' should be only as referred to in section 2(45) as computed in the manner specified under section 5, including the income tagged under section 64 [19] .

‘Total income’ of the individual member is relevant

For the purpose of applying higher rates of tax to a specified HUF, the 'total income' of an individual member of the HUF concerned, which may be a bigger Hindu undivided family, is relevant and not the total income of a smaller HUF, which along with other smaller HUFs is constituting a bigger HUF [20] .

Hindu undivided family-special provisions applicable

There are certain special provisions in respect of Hindu undivided family, which are to be found in sections:

Sr. No



6(2) and 6(6)(b)

residence in India


transactions not regarded as transfer


cost with reference to certain modes of acquisition


(operative up to 31-3-1991) LIP, etc., deduction for, also applicable to individuals


(operative up to 31-3 993) investment in certain new shares, deduction for


[deposits under National Savings Scheme or payment to an annuity plan


(operative from 1-41991) investment made under Equity Linked Savings Scheme, also applicable to individuals


(operative between 1-4-1968 and 31-3-1985) medical treatment, etc., deduction for, also applicable to individuals


(operative from 1-4-1987) medical insurance premia, also applicable to individuals


(operative between 1-4-1991 and 31-3-1999) [medical treatment, etc., of the handicapped dependants, also applicable to individuals;


(operative from 1-4-1999) [maintenance including medical treatment of handicapped dependant also applicable to individuals];


(operative between 1-4-1996 and 31-3-1999) [deposit made for maintenance of handicapped dependant, also applicable to individuals];


interest on certain secuntles, dividends, etc., deduction for, also applicable to individuals


(operative from 1-41991) [rebate 0n life insurance prem13, contribution to provident fund, etc., also applicable to individuals


(operative between 1-4-1991 and 31-3-1994) (rebate in respect of investment in certain new shares or units, also applicable to individuals];


[power to call for information];


[return by whom to be signed];


[assessment after partition of HUF];


[deduction at source out of interest, applicable to all units except individual and HUF];


(operative from 1-10-1991) [deduction at source out of commission, brokerage, etc. applicable to all units except individual and HUF];


(operative from 1-6-1994) [deduction at source out of rent, applicable to all units except individual and HUF]; 194J (operative from 1-7-1995) deduction at source out of fees for professional or technical services, applicable to all units except individual and HUF];


[computation of advance tax j;


[offences by HUF J; Ch. XXII-A (omitted w.e.f. 1-4-1988) [ss. 280A to 280X, Annuity Deposits, applicable to all units except RF, company, co-operative society, local authority, cooperation established by a Government Act];


(operative up to 31-3-1990) [tax credit certificates to equity shareholders, also applicable to individuals];


[service of notice 1; and

283(1 )

[service of notice when family is disrupted]; and Explanation to rule 73 of Schedule II [arrest of Karta possible].

Computation of Tax

It is based on following principles:

HUF is a separate tax entity.

HUF has to file its own return of income.

HUF can be a partner in a partnership firm through the Karta. (The Indian Partnership Act excludes an HUF carrying on family business as such from the ambit of partnership.)

When there is a direct relation between investment and income earned then it will be treated as HUF income.

HUF can not be a shareholder in a company

If Karta is director of company then his salary will be treated as income of HUF. If he devotes his personal skills to earn that income then it will be treated as his individual income.

HUF having its own business

Where the business is carried out by Karta or members and draws salary from this business, then the salary is an allowable expenditure in the hand of HUF and it will be taxable in Individual capacity of Karta or members receiving the salary.

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