The Hindu Undivided Family (HUF) is a unique and traditional concept rooted in Hindu law, providing a distinct legal status for families to manage their wealth and property. In this blog post, we’ll delve into the intricacies of HUF, discussing its laws, eligibility criteria, and the numerous benefits it offers.
What is a Hindu Undivided Family (HUF)?
A Hindu Undivided Family is a legal entity under the Hindu Law that comprises of all members who are lineal descendants of a common ancestor, including wives and unmarried daughters. It is important to understand that a HUF cannot be created under a contract, it is created automatically in a Hindu Family. It is governed by the Hindu Succession Act, 1956 and the Income Tax Act, 1961.
HUFs are primarily established to manage and safeguard ancestral property, and they hold a distinct legal status in India. This legal status enables HUFs to enjoy various tax benefits and exemptions under the Income Tax Act.
There are two major laws that govern HUFs in India:
- Hindu Succession Act, 1956 – This Act deals with the inheritance and succession of property among the members of the HUF. It has been amended over the years to ensure equal rights for male and female members in the HUF.
- Income Tax Act, 1961 – This Act governs the taxation aspects of the HUF. It provides various tax exemptions and deductions to the HUF, making it a popular choice for families seeking tax benefits.
Coparcenary under Hindu Undivided Family Law:
A coparcenary is a legal term specifically used in the context of Hindu Undivided Family (HUF) to describe a smaller unit within an HUF that has a common interest in the ancestral property. A coparcenary consists of the eldest living male member of the family and his lineal male descendants, including their wives and unmarried daughters.
In a coparcenary, the members have certain rights and interests in the ancestral property, which they inherit by birth. These rights include the ability to demand a partition of the property, the right to receive a share upon partition, and the right to survivorship, In case a coparcener dies without leaving any heirs, their share in the property is redistributed among the surviving coparceners.
It is important to note that the Hindu Succession (Amendment) Act, 2005 granted equal rights to daughters in a coparcenary, treating them at par with sons. This means that daughters now have the same rights to ancestral property as sons, making them coparceners from birth, just like their male siblings.
Ancestral Property under HUF:
Ancestral property can be defined as property inherited by a man from any of his three immediate male ancestors, such as his father, grandfather, and great grandfather. Property inherited from any other relative is not considered ancestral property. The income from ancestral property held by the following families is taxable as HUF income:
- A family consisting of a widowed mother and her sons (minor or major)
- A family of a husband and wife without any children
- A family of two widows of deceased brothers
- A family of two or more brothers
- A family of an uncle and his nephew
- A family of a mother, her son, and the son’s wife
- A family of a male and his late brother’s wife.
Eligibility Criteria for Forming an Hindu Undivided Family legal Entity:
To form an HUF, the following eligibility criteria must be met:
- The members must be Hindus, Buddhists, Jains, or Sikhs.
- There must be a common ancestor from whom the members have descended.
- There should be joint property or ancestral property to be managed by the HUF.
- There must be a coparcenary. It’s worth noting that once a joint family income is assessed as that of an HUF, it remains assessed as such in subsequent assessment years until a partition is claimed by the coparceners.
- Joint family property must be present, which includes ancestral property, property acquired with the assistance of ancestral property, and property transferred by its members.
Benefits of an HUF:
Here are some key benefits of forming an HUF:
- Tax Benefits: HUFs enjoy various tax exemptions and deductions under the Income Tax Act, such as a separate basic exemption limit, deductions under section 80C, and exemptions on dividend income.
- Protection of Ancestral Property: HUFs can ensure that ancestral property is preserved and passed down through generations, thereby preventing fragmentation or loss of property.
- Estate Planning: By forming an HUF, families can efficiently plan for the distribution of wealth among members and avoid disputes related to inheritance.
- Make sure to choose right Bank Account per your needs.
Hindu Undivided Family Tax Exemptions and Deductions
Here is a table detailing the tax exemptions and deductions available to HUFs:
|Basic Exemption Limit||HUFs enjoy a separate basic exemption limit of INR 2.5 lakh, allowing them to reduce their overall tax liability.|
|Section 80C Deduction||HUFs can claim deductions under section 80C for investments made in specified instruments, such as life insurance, PPF, and ELSS, up to INR 1.5 lakh per annum.|
|Dividend Income||Dividend income earned by an HUF is exempt from tax, provided it is received from an Indian company.|
In summary, the Hindu Undivided Family (HUF) is a unique legal entity under Hindu Law that offers numerous benefits, including tax exemptions, protection of ancestral property, and efficient estate planning.
Income Tax Act, 1961: This Act governs the taxation aspects of the HUF. You can read the full text of the Act here: Income Tax Department – Income Tax Act, 1961