By Amarpal S Chadha
In a country where families span generations and wealth is often viewed as shared rather than individual, the Hindu Undivided Family (HUF) offers a time-tested yet underexplored way to manage finances with foresight. The concept, rooted in The Hindu Succession Act, 1956 is available to families belonging to Hindu, Jain, Buddhist, or Sikh traditions. Once it comes into existence it becomes financially operational through the execution of a formal deed, allotment of a PAN, and the opening of a bank account. These steps transform the HUF from tradition into a legal and financial unit.
Role of karta
At the helm is the karta—the senior-most coparcener—who manages the HUF’s affairs and represents it legally. For key decisions such as selling immovable property, consent from all adult coparceners is generally required, and any deviation must be justified as necessary for the HUF’s welfare. This balance of autonomy and accountability is central to its functioning.
From a tax perspective, the HUF is assessed as a separate entity. It follows the same filing deadlines and tax slabs as individuals below the age of 60. The karta is responsible for compliance, including advance tax payments and return filing. Depending on the nature of income—whether from house property, capital gains, or business—the applicable form would be ITR-2, ITR-3, or ITR-4. Since the HUF can claim deductions and exemptions independently, it allows families to plan taxes in a structured and compliant manner.
Partition norms
An HUF may undergo either a total or partial partition. In a total partition, all assets are divided among all coparceners, bringing the HUF to an end. A partial partition, by contrast, involves either only some members or certain assets being separated, while the rest remain joint. Under the income tax laws, only total partitions are recognised. Income earned up to the date of partition is taxed in the hands of the HUF, and income from assets received post-partition is taxed in the hands of the respective members.
Since it is assessed separately, income such as rent or investment returns can be allocated to the HUF, helping reduce the family’s overall tax outflow. However, in certain situations, assets transferred to an HUF may still attract clubbing provisions.
Buying property in the HUF’s name keeps rental income and capital gains within the HUF structure, offering clarity on succession and reducing the likelihood of disputes. It’s a step towards long-term wealth preservation and smooth inter-generational transitions.
While HUF is a great vehicle for collective ownership, this comes with its own challenges. For instance, if a coparcener wishes to step away or claim a separate share, the path is not simple.
That said, like any financial entity, an HUF must be managed with responsibility.When governed transparently and in compliance with tax laws, the HUF becomes a living statement of unity, stewardship, and collective resilience.
The writer is tax partner, EY India. Inputs from Shanmuga prasad, director, EY India.
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