HUF Notes:
Hindu Undivided Family (HUF) consists of all persons directly descended from a
common ancestor, and also the wives and daughters of the male descendants.
For instance, you and your spouse along with your two children can create a
HUF and get certain relaxation in the computation of taxes
Features of HUF –
Liability: The liability of Karta is unlimited because he is the only deciding
authority, where the liability of co-parceners is limited up to the their share in
the capital
Share in profit & loss: According to 1956 Hindu succession act all the members
of HUF have equal rights to share the profits as well as losses of the business
Control: The control of the family is lies with the Karta. He takes all decisions &
authorities to manage the business
Continuity & Stability: The organization enjoys long and stable life as it is not
affected by death, insolvency, insanity of any of its member. In other words if
KARTA dies and became incapable of managing the business then the
succeeding CO-PARCENERS will act as KARTA.
Business Secreacy:
here is a great deal of business secrecy in the organization.
The business secrets are known to the CO-PARCENERS in general and KARTA in
particular.
• It is not obligatory for them to publish their accounts, which results in great
deal of privacy and secrecy
HUF AS A PARTNER IN A PARTNERSHIP FIRM:
to become a partner in a partnership firm, the partner should be a natural
person or recognized as person by the law . Since, HUF is not a
“person”, but only a group of persons belonging to the same family and
carrying on the family it cannot act as a partner. Unlike a company, a HUF has
no separate existence from its members. A Company as a separate entity can
enforce its rights, whereas, a HUF, has to be necessarily represented by a Karta
or an adult member for enforcing any of its rights. A HUF cannot be treated as
a person.
TAXATION: according to the Income-tax Act, 1961 (“the Act”) &
Wealth Tax Act, 1957, a Hindu Undivided Family (“HUF”) is treated as a
separate person for the purpose of taxation.
Taxability of HUF:
In order to compute the income of an HUF, one has to first ascertain its income
under the different heads of income (ignoring incomes exempted under
sections 10 to 13A of the Act). The following points should be keep in mind
while computing income:
■ If funds of an HUF are invested in a company or a firm, fees or remuneration
received by the member as a director or a partner in the company or firm may
be treated as income of the family (if fees or remuneration is earned essentially
as a result of an investment of funds).
■ However, if fees or remuneration is earned for services rendered by the
member in his personal capacity, it will be treated as the personal income of
the member.
■ If any remuneration is paid by the HUF to the karta or any other member for
services rendered by him, remuneration is deductible from the income of HUF
if such payment is genuine and not excessive and paid under a valid and bona
fide agreement.
The following incomes are not taxed as income of HUF:-
■ If a member has converted or transferred without adequate consideration
his self-acquired property into joint family property, income from such property
is not taxable in the hands of the family.
■ Income of impartible estate (though it belongs to family) is taxable in the
hands of holder of estate and not in hands of HUF.
■ Personal income of the members cannot be treated as income of HUF.
■ "Stridhan" is absolute property of a woman, hence income arising
therefrom is not taxable as income of HUF.
■ Income from individual property of daughter is not taxable in hands of HUF
even if such property is vested into HUF by daughter.
1 Deduction from gross total income: An HUF is entitled for deductions
available under Chapter VI-A (as applicable) while calculating its taxable
income.
2 Rate of Tax:
■ An HUF is taxed on same slab rates which are applicable to an Individual.
■ An HUF is liable to pay Alternate Minimum tax if the tax payable is less than
18.5 per cent (including cess and surcharge) of "Adjusted Total Income" subject
to prescribed conditions.
