hindu undivided family formation to partition legal and tax implications by ca deepak m rindani n.
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Hindu Undivided Family Formation to Partition – Legal and Tax Implications By CA. Deepak M. Rindani. I. Basic Concepts: Who is a Hindu HUF – all persons lineally descended from a common ancestor and joint in property, food and worship HUF is not a juristic person in law

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hindu undivided family formation to partition legal and tax implications by ca deepak m rindani

Hindu Undivided FamilyFormation to Partition – Legal and Tax Implications By CA. Deepak M. Rindani

slide2
I. Basic Concepts:
  • Who is a Hindu
  • HUF – all persons lineally descended from a common ancestor and joint in property, food and worship
  • HUF is not a juristic person in law
  • Sources of Hindu Law
      • Manusmruti
      • Dharmashastras
  • Historical Background
slide4
Who are considered Hindus?
  • Those who are Hindus by Birth and religion
  • Jains and Sikhs
  • Illegitimate Children whose both parents are Hindus
  • Any child whose father or mother is Hindu and who is brought up as Hindu
  • Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)
slide5
Who are NOT considered Hindus?
  • Muslims, Parsis and Christians
  • Those who have converted from Hinduism
  • Khojas and Cutchi Memons (subject to certain riders/provisions and not dealt with here)
slide7

HUF Tree – Illustrative only

- A’s Wife

Daughter

Sons

slide9
III. Creation of HUF:

Is in God’s hands, what we can do is to create HUF property once there is a family nucleus. Modes of creation of HUF property are:

1) By Blending:

  • Of self acquired property into HUF property by conduct/ declaration of members of HUF
  • This has tax implications
slide10
III. Creation of HUF:

2) By Gift from Non-members:

  • Nucleus should exist – property created by gift
  • Intention of donor, documentation, receiver’s statement
slide11
3) By Partition of Pre-Existing HUF :
  • Partial Partition: Partial as to members and/or as to property
  • Total Partition: Nothing left in HUF
  • Unequal partition is possible
  • Who is entitled to enforce partition
  • Who is entitled to how much share upon partition
  • Nature of property on partition in hands of receiver
slide12
4) By Will (of any person):
  • To own HUF
  • To HUF of others
  • To future HUF of unmarried son

5) By Reunion:

  • Of previously partitioned HUF
  • All members who were partitioned need not necessarily reunite
  • But those who reunite must bring back all properties received on earlier partition
slide13
6) By Joint Labour:
  • Family of craftsmen, joint activity and creation of joint income
slide14
Some Typical Situations:
  • Husband & wife only – no children
  • Single male + mother + wife + daughter (Gowli Buddana)
  • Single male + wife + daughter (N.V. Narendranath)
  • single male + widow of deceased brother
  • two or more widows of deceased coparceners with undivided properties ( AR Veerappa Chettier )
  • single male + mother +sister
  • HUF can exist without single male coparcener
slide15
HUF can exist with totally empty kitty of property
  • Females cannot blend their property into HUF but can give gift (Pushpa Devi)
  • Females can be karta in absence of major male member
  • Sole surviving coparcener (male or female)
  • Only females left in family
slide16
IV. Management of HUF Property:
  • Concept of Karta – Manager
  • Who can be Karta
  • Powers & duties of Karta
  • Powers & duties of other members – rights of education, maintenance
  • Dispositions out of HUF property
  • Debts of HUF
  • Obligations upon HUF property
      • Pious obligation of sons to pay debts of father out of coparcenary interest of sons in HUF property
      • Duty of father to maintain wife, minor sons, unmarried daughters and infirm parents out of HUF property
slide17
V. Partition of HUF:
  • Meaning of – severance of status and interest
  • Mere division of shares vs Metes & Bounds
  • Kinds of – Total / Partial
  • Rights to enforce partition
  • Allotment of shares of partition (Per Stripes and Per Capita)
  • Documentation & Care
slide18
VI. HUF and Law of Succession:
  • Devolution of interest in HUF upon death of Karta/Member
  • Overriding effect of Hindu Succession Act, 1956 – Sec. 6
  • Succession to individual property
  • Testamentary vs Intestate succession to interest in HUF
  • Ancestral Agricultural Lands
slide19
VII. Status of females and daughters in HUF:
  • Mother
  • Wife
  • Daughters
  • Daughters-in-law
  • Rights of daughters and important implications of HS (Amendment) Act, 2005
  • Due to amendment, daughters to have same rights as coparceners
  • Is there any distinction between married and unmarried daughters now?
slide20
VIII. Taxation of HUF:
  • Treated as a “person” u/s 2(31)(ii)
  • Tax rates – same as Individuals
  • W.T. also leviable
  • Significant provisions of I. T. Act specific to HUF:
slide21
IX. HUF and Partnership Business:
  • Implications under Partnership Act
  • Interest on capital
  • Remuneration & Sec. 40(b)
  • Borrowings from Banks
  • Drafting care in partnership deeds
  • Same person as partner in dual capacity – as Karta and as Individual in same firm – partnership law recognizes only individual as partner (Rashik Lal & Co. 229 ITR 458 – SC)
slide22
HUF as Proprietor of Business:
  • Use of HUF funds and labour
  • Use of HUF property
  • Can professionals or service providers function as HUF?
  • Issue regarding lending by Banks
slide23
X. Is HUF yet a Tax Planning Tool?
  • Is a separate taxable entity
  • Gives rise to division of income and wealth
  • Is a tool to accumulate business assets/property in HUF name and allow use by other business entities to distribute wealth and tax incidents
  • Transfer of funds inter se HUF and its members by way of loans rather than gifts
  • Separate entitlements to exemption from capital gains u/s 54, 54EC, 54F etc.
  • Possibilities of multiple HUFs in appropriate situations
stamp duty on huf
Stamp Duty on HUF
  • On Partition
  • On Release
  • Existence of immovable property
  • Probate duty
  • Issues reg. titles, Revenue records etc.
slide25
XI. Is HUF Relevant In Present Times?
  • Rising trend of nuclear families and individualism – changing social forces
  • Are our families truly joint and undivided?
  • Equal rights to daughters after marriage – boon or bane – continuing debate
  • Issues reg. banking, borrowing, transfer of immoveable property, probate etc.
  • Can we preserve our culture of unity and mutual family bonding through HUF?
slide31

Note: - Tax advantage of conversion has since been lost by insertion of Sec. 64(2) in IT Act, 4(IA) in WT Act