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Hindu Undivided Family (HUF)-Creation and Treatment

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  • Hindu Undivided Family (HUF) is treated as a separate entity for the purpose of assessment under the income tax Act and Wealth tax Act.
  • HUF is automatically created after marriage as soon as child is born it is not arise through law or contract, it consist of father, sons, daughters. But wife is not the part of the HUF
  • Sons, daughters, father only have the Right to demand partitions

        If a partition of HUF is made by Courts, the courts will always award equal partitions,               however, the family may mutually affect partition without going to the courts and mutual partition can be unequal.

  • Partition has to be in full. Partial is not recognized under the income tax Act and Wealth tax Act.
  • HUF cannot make any gift of HUF property to co-parcener and non-coparceners, any gifts made by HUF are void, The gifted property shall be included in the wealth of HUF and not the done. Similarly, the income from gifted properties shall be taxable in hands of HUF and not the done.
  • The provisions of computing income of HUF are the same for a normal assesses.
  • No capital gains shall arise on distribution of assets to the HUF on partition of huf.
  • As per section 49(1) of Income tax Act, where assets are distributed on partition of HUF, then the cost of acquisition of such assets to the member shall be the cost of acquisition of such asset in the hands of HUF, Period of holding of asset in hands of HUF shall be considered in hands of member.
  • There must be physical division of the property.

 Any remuneration is paid by the Hindu undivided family to the Karta or any other member for services rendered by him in conducting family business, It is  deductible if;

  • Paid under a valid agreement;
  • In the interest of an expedient for the business of family; and
  • Reasonable and not excessive.

  • There can be two types of partitions;
  • Total Partition
  • Partial Partition

Total Partition: Where all the properties of the family are divided amongst all the constituents   of the family, and the family ceases to exist as HUF,it is known as total partitions.

Partial Partitions: If some members of the HUF go out, other remains together, or some property is divided ,and balance remain joint, it is known as partial partition, Partial partition is not recognized in Income Tax Act,1961 and Wealth Tax Act.

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