The document discusses Hindu Undivided Families (HUFs) under the Income Tax Act of 1961. It defines an HUF as a separate assessable entity for taxation purposes. It outlines how an HUF is created, the different members and their roles, tax deductions and slabs that apply to HUFs, and how investments can be made through an HUF. Key points covered include how income is computed for an HUF, the tax treatment of full and partial partitions of an HUF, and some landmark court rulings related to HUFs.

1. TAX PLANNING THROUGH
HUF

2. HUF
 u/s 2(31)(ii) of the IT Act,1961 defines the
word „person‟, which includes HUF.
 Therefore, an HUF is a separate assessable
entity under the Income Tax Act,1961 and
Wealth Tax Act,1957.

3. BASIC CONCEPTS
 Who are considered Hindus?
 Those who are Hindus by Birth and Religion
 Jains and Sikhs
 Children whose both parents are Hindus
 Any child whose father or mother is a Hindu and who is brought up as a Hindu
 Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)

4. WHO ARE NOT CONSIDERED HINDUS?
 Muslims
 Parsis
 Christians
 Those who have converted from Hinduism

5. CREATION OF HUF
 Modes of creation of HUF are:
1) By Gifts from Members;
2) By Gifts from Non Member;
3) By Will;
4) By ancestral property;

6. TAX SLABS
Slab Rate of interest
Up to 2,00,000 Nil
2,00,001-500000 10%
5,00,001-10,00,000 20%
Above 10,00,000 30%
Education Cess 2%
Higher Education Cess 1%

8. MEMBERS OF MR. “X” HUF
Any individual up to 4th generation descendent

9. KARTA OF MR. “X” HUF
Senior Most Male Member
Sr. No. Individual Karta
1. Mr. “X” Yes
2. Mrs. “X” No
3. Son “X” No
4. Daughter “X” No

10. CO-PARCENER OF MR. “X” HUF
Individual who can demand partition
Sr. No. Individual Co-parcener
1. Mr. “X” Yes
2. Mrs. “X” No
3. Son “X” Yes
4. Daughter “X” Yes*
(* w.e.f 9th September 2005)

11. CO-PARCENERY OF MR. “X” HUF
Individual who can share property on partition
of HUF
Sr. No. Individual Karta
1. Mr. “X” Yes
2. Mrs. “X” Yes
3. Son “X” Yes
4. Daughter “x” Yes

12. SEPARATE DEDUCTION U/S 80C, 80D,
80G, 80IA, 80IB

13. SOME OTHER SEPARATE DEDUCTION
 Separate partnership share.
 Salary to Karta /Member.
 No T.D.S. on Interest.
 Separate Income-tax Deduction on Interest for self occupied
House Property.
 Separate entitlements to exemption from capital gains u/s 54,
54EC, 54F etc.

14. STOCK MARKET, MUTUAL FUNDS & HUF’S
 HUF can have a separate Demat Account.
 Make money by investing in shares of companies :-
 (a) Primary Market
 (b) Secondary Market
 Enjoy Tax Free Income for Long-term Capital Gains by
holding shares for more than one year
 Enjoy lower tax rate of 15% on Short-term Capital Gains.
 HUF can also invest in Mutual Fund.

15. HUF AS PROPRIETOR OF BUSINESS
 HUF can be a Proprietor of one or more than
one Business concerns.
 Separate name can be kept of HUF business
entity.
 No tax Audit of HUF business if Turnover
within Rs. 1 crore.
 Business Income Computation @ 8% without
books of account in case turnover is up to Rs. 1
crore – The Presumptive Basis

16. ON 9TH SEPTEMBER 2005, THE HINDU SUCCESSION ACT,
1956 WAS AMENDED TO PROVIDE THAT

17. Partition of HUF
(1) (2)
Total Partition Partial Partition

18. 1. TAX IMPLICATIONS OF FULL PARTITION OF HUF
All the properties of HUF is distributed amongst
all the co-parceneries.
HUF is discontinued.

19. 2. TAX IMPLICATIONS OF PARTIAL PARTITION OF
HUF
Partial Partition
Regards Persons Regards Property
Any one or more co-parcener is Any one or more property is
given his/her share distributed to all the co-parceneries
As per section 171(9) of the Income-tax Act, 1961 the Partial Partition after
31-12-1978 is not recognized.

20. 1. Mr. “x” HUF
• Bank Fixed Deposit Rs 12, 00,000 @10% p.a.
• Members Mr. “X”, Mrs. “X”, Son “X”, Daughter “X”
• Assume Mr. “X” Dies
Old Rule (Survivorship) (M&M)
Before Death After Death
Interest Rs. 1,20,000 Interest Rs. 1,20,000
Taxed To Mr. “X” HUF Taxed To Deceased Mr. “X” HUF
Co-Parcenery Co-Parcenery
Mr. “X” = 1/3
Mrs. “X” = ½
Mrs. “X” = 1/3
Son “X” = ½
Son “X” = 1/3
Daughter “X" = M& M
Daughter “X" = M& M

21. New Rule (Succession) [Daughter Equal Right]
After Death*
Before Death
10% F.D Rs.12,00,000
Interest
Total Rs.9,00,000 F.D 10%
RS 1,20,000 Mr. “X” = ¼
Interest Rs.90,000
F.D Rs.3,00,000
Taxed to deceased Mr. “X” HUF
Taxed to Mr. “X” HUF
WILL NO WILL
Mrs. “X” Son “X” Daughter “X”
Co-Parcenery It will as per
Mr. “X” = ¼ WILL
Rs.1,00,000 Rs.1,00,000 Rs.1,00,000
Mrs. “X” = ¼
Son “X” = ¼
Taxed Mrs. “X” Taxed Son “X” Taxed Daughter “X”
Daughter “X” = ¼

22.  Computation of Income
 Aggregate of :-
 Income under the head House Property.
 Profits and gains from business & profession
 Income from capital gains
 Income from other sources
 Less: deduction under chapter VIA i.e., 80C, 80D,80DD, 80DDB, 80G,
80GGA, 80HHB, 80HHBA,80HHC, 80HHD, 80HHE, 80HHF, 80I, 80IA,
80IB,80L & 80O.

23. CONTINUED.....
 Calculate Tax on Total Income

 Less: relief u/s 86, 90 & 91
 Add: Interest u/s 234A, B & C
 Less: TDS & Advance Tax
 Less: Self Assessment Tax
 Balance Tax payable / Refund due

24. RELATIVE
Sr. No. Section Provision Relative
1. 40(a)(ii) Payment to relative – if Member – HUF – Relative
Excessive - Disallowed HUF – Member – Relative
2. 56(2) Gift received from Member – HUF – Relative
Relative of any amount HUF – Member – Non-relative
is Exempt.
3. 64(2) Income on assets Member – HUF – Relative
received in gift from HUF – Member – Non-relative
relative is clubbed to
transferor.

26. Total Mr. “X” Mrs. “x” Son “X” Mr. “X” HUF
Total 44,60,000 11,15,000 11,15,000 11,15,000 11,15,000
Income
Less : 80C 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000
Less : 80 15,000 15,000 15,000 15,000 15,000
D
Taxable 42,85,000 10,00,000 10,00,000 10,00,000 10,00,000
Income
Basic 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000
Exemption
Total Tax 11,48,965 1,33,900 1,33,900 1,33,900 1,33,900
Liability
Tax Saved = 6,13,365 [11,48,965 – (1,33,900 + 1,33,900 + 1,33,900 + 1,33,900)]

27. Salient Features of HUFs and
Landmark Rulings:
1. A single member cannot be treated as 1. C. Krisnaprasad
HUF. 97 ITR 493 (SC)
2. HUF may consist of single male and 2. Gowli Buddana
widows of deceased males, A single 60 ITR 293 (SC)
male, his wife and daughters.
3. Family may be formed by partition 3. N.V. Narendranath
though not be survivorship. 74 ITR 190 (SC)
27

28. 4. On partition of bigger HUF, a 4. Soth Tulsidas Bolumal
coparcener and his wife can 170 ITR 1 (AP)
constitute HUF. Krishnakumar
143 ITR 462 (MP)
5. It is possible to constitute HUF 5. Premkumar
on marriage of an individual 121 ITR 347 (ALL)
male, if he has received asset on
inheritance or partition.
6. Took a contrary view to (5) 6. Vishnukumar
above. 142 ITR 357 (ALL)
28

29. 7. Individual property of father 7. Chander sen
who dies after Hindu 161 ITR 370 (SC)
Succession Act came into force
(17-6-56) devolves on sons As
individuals. Even the property
held by a father received on
partition, on death of father, on
second partition, is Son‟s
separate and individual property.
8. For Right of a surviving female 8. Gurupada Khandappa
relative, Sec. 6 of H.S. Act Madgam Vs. Hirabai
(Explanation) lays down that 129 ITR 440 (SC)
there will be deemed partition.
29

30. 9. But HUF even then continues- 9. State of Maharastra Vs.
Explanation: - merely helps to Narayan Rap 163 ITR 31
identify the share of female (SC)
members and their Legal heirs.
10. On death of sole male member 10. Smt. Nagarathnama 76 ITR
after HS Act (17-656) females 352 (MYS) Knatilal Manilal
heirs receive property as their 90 ITR 289 (GUJ)
absolute property.
11. HUF can consist of husband and 11. C.I.T. vs. Arunkumar
wife only Jhunjhuwala
138 CTR 63
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31.  Important links
 http://wirc-icai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Taxation%20of%20Huf.htm