Library / Income-tax Act, 2025: The Professional's Master Guide

21. Taxation of Hindu Undivided Families

A Hindu Undivided Family is a separate taxable person. It consists of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. Jain and Sikh families are also treated as HUFs for tax. Since 2005, daughters are coparceners by birth under the Hindu Succession Act, with the same rights as sons.

Judicial view: Existence of an HUF

Gowli Buddanna v. CIT (Supreme Court, 1966): property of a joint family does not cease to be joint family property merely because it is held by a sole surviving coparcener, when there are female members of the family.

Surjit Lal Chhabda v. CIT (Supreme Court, 1975): an HUF can exist with a single male member together with his wife and unmarried daughters; a plurality of male coparceners is not necessary.

21.1 How an HUF gets income

Ancestral property inherited by the family.
Property thrown into the common hotchpot by a member (but see clubbing below).
Gifts received by the HUF from relatives or others (a gift from a non-member above Rs. 50,000 is taxable; gifts from members are from "relatives" because the definition includes an HUF receiving from its members).
Income from business run by the HUF through its karta.

21.2 Taxation of the HUF

Point	Treatment
Rates	Same slabs as an individual below 60, in old or new regime; new regime is default
Deductions (old regime)	Section 123 (insurance on life of any member, deposits), 126 (health insurance of members), and others available to HUFs
Salary paid to karta or members	Deductible if paid for services to the HUF business, reasonable and under an agreement
Amount received by a member from the HUF	Exempt in the member's hands
Presumptive schemes	Section 58 business scheme available; profession scheme is for individuals and firms
Return	ITR-2, ITR-3 or ITR-4 (presumptive business), signed by the karta

21.3 Clubbing on conversion of individual property

If a member converts his individual property into HUF property (throws it into the common hotchpot) without adequate consideration, the income from that property is clubbed with the member's own income. On partition, the income from the converted property received by the member's spouse is also clubbed. This prevents splitting of income through conversion.

21.4 Partition

A total partition of an HUF must be recognised by the Assessing Officer after inquiry. Partial partitions made after 31 December 1978 are not recognised for tax; the family continues to be assessed as if no partition had taken place. Distribution of assets on total partition is not a transfer for capital gains (section 70), and each member takes the HUF's cost and holding period.

Illustration 93: Planning with an HUF

Vijay's HUF owns ancestral property let out at Rs. 5,00,000 a year. Income from house property = 5,00,000 less 30% = Rs. 3,50,000, which is below the Rs. 4 lakh basic exemption of the new regime, so the HUF pays no tax. Note that the section 156 rebate is available only to resident individuals, not HUFs; the benefit here comes from the HUF's own exemption limit and slabs. Had the property been Vijay's own, the rent would have been added to his salary and taxed at his marginal rate.

Key point

An HUF cannot be created by a gift or by a person alone; it arises by operation of law on marriage and birth. Contributions by members to create income in the HUF are clubbed with the member. Gifts from relatives outside the HUF, or inheritance, are the cleaner ways to build an HUF corpus.

Chapter summary

• An HUF is a separate taxpayer with its own slabs but no section 156 rebate.

• Property converted into HUF property by a member is subject to clubbing.

• Only total partitions are recognised for tax.