Know Your HUF – Poised to join MAHA-CHS

By I C Naik

Last month members were apprised of a recent development that the MAHA-CHS Regulatory Regime [for brevity the MCHSRR] is preparing itself. HUF has been decided to offer membership in MAHA-CHS. [https://www.indiancooperative.com/cooperative-coffee-shop/be-prepared-to-welcome-huf-to-the-membership-of-maha-chs/]. Hopefully a stage will be set with red carpet by the MCHSRR to welcome them by January 1. In the mean time, it may be a good idea that the MAHA-CHS members familiarize them- selves with the term HUF [Hindu Undivided Family].May be it enhances their anxiety to switch over from Individual membership to HUF membership in respect of their family dwellings. 

“A Hindu undivided family or HUF is a legal term related to the Hindu Laws namely (i) Hindu Marriage Act 1955 (ii) Hindu Adoption and Maintenance Act 1956 (iii) Hindu Minority and Guardianship Act 1956, and (iv) Hindu Succession Act 1956. Historically, for generations India had a prevailing tradition of the Joint Hindu Family or undivided family [HUF].  “A joint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her father’s family and becomes a member of her husband’s family [Surjit Lal Chhabra 101 ITR 776 in SC Delivered 6-10-1975] “.

The Income Tax Act, 1961 recognizes HUF as a taxable entity under Section 2(31). This Section defines “person” for charging income the Amendment Act which includes an HUF. HUF is not formally created. It comes in to existence upon a man getting married. Since HUF is a proven tax saver scheme for a family having significant income, it is advisable to make a deed of HUF especially when it starts growing if not immediately upon marriage. Where tax benefits as explained later appear imminent, it is certainly advisable that the deed is filed with the Income Tax Authorities along with application for PAN. Online application can be made either through the portal of NSDL ( https://tin.tin.nsdl.com/pan/index.html) or portal of UTITSL (https://www.pan.utiitsl.com/PAN/index.jsp????????). Charges for applying for PAN is Rs. 93 (Excluding GST). Payment of application fee can be made through credit/debit card, demand draft or net-banking. Once the application and payment is accepted, the applicant is required to send the supporting documents through courier/post to NSDL/UTITSL. Only after the receipt of the documents, PAN application would be processed by NSDL/UTITSL. For New PAN applications, if address for Communication is selected as Office, then Proof of Office Address along with Proof of residential address is to be submitted to NSDL along with Form 49A if the application is made for the first time. Read more on https://www.tin-nsdl.com/services/pan/options.html

“The manager ship of the Joint Family Property goes to a person by birth and is regulated by seniority and the Karta or the Manager occupies a position superior to that of the other members. A junior member cannot, therefore, deal with the joint family property as Manager so long as the Karta is available except where the Karta relinquishes his right expressly or by necessary implication or in the absence of the Manager in exceptional and extra-ordinary circumstances such as distress or calamity effecting the whole family and for supporting the family or in the absence of the father whose whereabouts were not known or who was away in remote place due to compelling circumstances and that is return within the reasonable time was unlikely or not anticipated” as held by the Supreme Court in Tribhovan Das Haribhai Tamboli v. Gujarat Revenue Tribunal and Ors  AIR 1991 SC 1538]. Family income flows into a common pool, from which resources are drawn to meet the needs of all members, which are regulated by the head of the family. But the senior most member may give up his right of management and a junior member may be appointed as manager [ Narendrakumar J Modi v. CIT 1976 S.C. 1953].

Hindu Succession (Amendment) Act, 2005 turned the daughters of a family, coparceners [coparcener is a person who shares equally with others in the inheritance of an undivided estate or in the rights to it] in the HUF property and further gave them the right of survivorship via amended Section 6 (1) (a) and (b) of Hindu Succession Act, 1956. This amendment gave daughters equal rights as the sons. The landmark Delhi High Court judgment in Mrs. Sujata Sharma v Shri Manu Gupta ruled: after the 2005 amendment to Hindu Succession Act, 1956 brought the next step to realizing equality of women in the Hindu Undivided Family. The court found that while females have equal rights to HUF property (Post 2005), they also have the right to manage the same property as Karta as the court found no restrictions regarding a female Karta in amended Section 6. Thus, after the demise of the father in a HUF, if the eldest is a daughter then she becomes the Karta of that same HUF, with the mother and siblings (if any) as members of the HUF. Even after her marriage a daughter retains her right to coparcenary as also the right to be Karta. In fact, a woman may even be a de facto Karta in the family where she marries and a de jure Karta in her family of origin provided that she is a widow and is the only major in both the families.

The major advantage of creating a Hindu Undivided Family Account is that the family gets an extra PAN Card and can split the family income and thereby reduce the tax outgo. This is the major reason why CA’s advise their clients to create a HUF and save taxes.

Taxation of HUF:

1. If funds of an HUF are invested in a company or a firm, fees or remuneration received by the member as a director or a partner in the company or firm may be treated as income of the family (if fees or remuneration is earned essentially as a result of investment of funds). However, if fees or remuneration is earned for services rendered by the member in his personal capacity, it will be treated as the personal income of the member.
2. If any remuneration is paid by the HUF to the Karta or any other member for services rendered by him, remuneration is deductible from income of HUF provided such payment is genuine and is not excessive and paid under a valid and bona fide Such payments will be liable to TDS as may be applicable.HUF will have to obtain TAN [Tax Deduction and Collection Account Number].
3. The following incomes are not taxed as income of HUF:-
   1. If a member has converted or transferred without adequate consideration his self-acquired property into join family property, income from such property is not taxable in hands of the family.
   2. Personal income of the members cannot be treated as income of HUF.
   3. “Stridhan” is absolute property of a woman, hence income arising there from is not taxable as income of HUF.
   4. Income from individual property of daughter is not taxable in the hands of HUF even if such property is vested into HUF by daughter.
4. An HUF is entitled for deductions available under Chapter VI-A of Income Tax (as applicable) while calculating its taxable income. For Example Tax saving investments
5. An HUF is taxed on same slab rates which are applicable to an Individual.