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HINDU UNDIVIDED
FAMILY An insight into the concept and tax status
The document endeavors to shed light on the concept of a HUF and the various tax positions on the same through the life of a HUF from formation to cessation
2011
Santhosh Srinivasan Divakar Vijayasarathy and Associates
5/6/2011
TABLE OF CONTENTS
Introduction ....................................................................................................................................................................3
Meaning of a HUF ..........................................................................................................................................................5
Schools of HUFs .............................................................................................................................................................5
Hindu Law and its Applicability .............................................................................................................................7
Business and HUF .........................................................................................................................................................8
Formation of a HUF ......................................................................................................................................................9
HUF and Income Tax ................................................................................................................................................ 10
HUF and Wealth Tax ................................................................................................................................................. 12
Partition of HUF .......................................................................................................................................................... 14
Partition and Income Tax Act .............................................................................................................................. 16
Landmark Decisions on the principle of HUF .............................................................................................. 17
Tax Planning Prospects through HUF .............................................................................................................. 19
Introduction
The system of Joint Hindu Families also known as Hindu Undivided Families, besides being
the backbone of the Indian Social System had been playing a significant role in the
development of business in India. The concept of ownership of property by the family as a
distinct and separate unit when carrying on a family business is the distinguishing factor of
a Hindu family, from a family as is otherwise normally understood
The recognition of a HUF as a separate entity had its genesis when taxation on income was
introduced by the British in the late 19th century. At those times, an undivided family was
an active, social entity, engaged in commerce and industry not only among Hindus all over
the country but also among Sikhs, Jains and Buddhists. The British considered it prudent to
tax such units as a separate entity and the principle has stuck ever since, expanding into
areas of wealth, gift and estate taxation.
HUFs are legally governed by the Hindu Succession Act, 1956 which recognizes the
formation and partition of a HUF. An interesting point of note is that a HUF is not created
by an act of parties like in the case of a firm or company, but is rather a creation of law.
Meaning of a HUF
A Hindu Undivided Family is defined as consisting of a common ancestor and all his lineal
male descendants together with their wives and unmarried daughters. A female once
married becomes a member of the HUF of her spouse and ceases to be a member of the
HUF of her father.
A Hindu refers to any person who is a Hindu by religion. The Hindu Succession Act, 1956
states that it applies to any person, who is a Hindu by religion in any of its forms or
developments, including a Virashaiva, a Lingayat, or a follower of Brahmo, Prathna or Arya
Samaj, a Buddhist, Jain or Sikh
A HUF, as such, can consist of a very large number of members including female members
as well as distant blood relatives in the male line. However, out of this, coparceners are
only those males who are within 4 degrees in lineal descendent from the common male
ancestor. The relevance of concept of coparcenary is that only coparceners can ask for
partition. The other male family members; i.e, other than coparceners in a HUF, have no
direct claim over HUF property, but can claim only through the coparceners.
Schools of HUFs
As said earlier a HUF is governed by Hindu Law, and this law although uniform in
fundamentals, varies in some details from one place to another. Thus although the same
law is applicable to all taxpayers vis-à-vis chargeability, incentives and assessment, there
are few issues arising out of the fact that different HUFs are governed by different schools
of Law
There are two major schools of Hindu Law namely Mitakshara and Dayabhaga. During the
eleventh century, Vijneshwara compiled a compendium of law as it then existed and named
it Mitakshara. Mitakshara has been commented upon, explained, interpreted and
elaborated resulting in the emergence of Dayabagha School of thought. Dayabhaga is a
treatise written by Jimutavahana in the twelfth century. It is critical of the Mitakshara in
many ways, but more particularly in respect of the law of inheritance and succession. It
however does not reject Mitakshara in totality. Where Dayabagha is silent Mitakshara
automatically prevails.
The Dayabagha School of thought is prevalent only in the state of Bengal and not in any
other part of India. In this school of thought, the father is the absolute owner and in
exclusive possession of the joint family property which devolves on his death to his sons
and widow as company-heirs by succession and not by survivorship
The Mitakshara school, including its sub schools are the most prevalent. According to the
Mitakshara school of thought, ownership of property vests in the family as such and not in
any member of the family. It recognizes two modes of devolution of property, one for the
joint family and other for the individual.
On death of an individual his undivided coparcenary interest devolves on the other
coparceners by survivorship. If however he is the only male coparcener at the time of his
death, his entire interest will pass to his heirs by succession. There is no restriction on the
individual members of the HUF owning properties in their own individual names and such
property devolves to his heirs by succession on his death.
In a Mitakshara family every member born into the family acquires an interest in the family
property by birth and the interest of every member in the family fluctuates by birth and
death in the family. The HUF continues its existence on the death of any member including
that of the common ancestor or the Karta, who is replaced by the next senior most member
as the Karta.
The Joint property of a Mitakshara HUF includes the following
- Property, which in the hands of the firs holder is ancestral i.e. the property inherited
by him in the male line
- Property acquired by him or the members of the family with the help of the
inherited property as distinct from the property acquired by him or the other
members by their individual effort.
- Separate property acquired by coparceners of the family but thrown into the
common pool of the family property.
- Property acquired on partition of an HUF
Hindu Law and its Applicability
Before the codification of the Hindu Law in 1956, the application of the law was governed
by custom, tradition and usage, which was often sanctified by judicial decisions. Hindu Law
applied to the following
- Hindus not only by Birth but also by conversion
- Illegitimate Children where both parents are Hindus
- Illegitimate children where father is Christian and mother a Hindu and if children
are brought up as Hindus
- Jains, Buddhists in India, Sikhs, Nambudri Brahmins except so far as such law is
varied by custom and to Lingayats
- A Hindu by birth having renounced Hinduism has reverted to it
- Sons of Hindu dancing girls
- Brahmos, Arya Samajists, and Santhals of Chota Nagpur
- Hindus who make a declaration that they are Hindus for the purpose of Special
Marriage Act
- Cutchi Menons who had settled in Madras and Travancore etc and regulated their
affairs according to Hindu law in matters of succession, inheritance and property
including the concept of coparcenary and survivorship
The following laws were however enacted which codified the Hindu Law and expressly
stated to whom the statutes apply.
(i) Hindu Marriage Act, 1955
(ii) Hindu Succession Act, 1956
(iii) Hindu Minority and Guardianship Act, 1956
(iv) Hindu Adoption and Maintenance Act, 1956
As regards children of mixed marriages, the Supreme Court in CWT v. Late R Sridharan 104
ITR 436 (SC) held that a son born to a Hindu father and Christian mother who has been
brought up as a Hindu formed a HUF and would be governed by Hindu Law
Business and HUF
An HUF is liable to Income tax on its income and the most common source of income for an
HUF is from business. A HUF is liable to income tax, capital gains tax, gift tax and wealth tax.
The business of an HUF is different from a proprietary business of an individual in the
sense that at no time is the individual proprietor accountable to anyone else while the
Karta of the HUF is bound by the obligations imposed upon him by the Hindu Law.
A Karta / manager of the HUF can incur debts on behalf o the family and pledge the credit
and asses of the family to raise funds for the business of the family. He can utilize the
profits of the business in the best interest of the family according to his discretion.
As regards limitation of liability, if there are any unsettled debts at the time of partition,
such debts are considered to be the liabilities of the coparceners and limited only to such
extent of their interest in the HUF. However the Karta has unlimited liability with respect to
such debts and his personal assets can be attached to the debts.
While a HUF can carry on business as such, the Karta and other coparceners can carry on a
business in their individual capacity as well. The Supreme Court has laid down certain
criteria for determining whether a particular income belongs to the individual or the HUF
Whether the income received by the coparcener had any real connection with the
investment of joint family funds.
Whether the income was directly related to any utilization of family funds or assets
Whether the family had suffered any detriment in the process of realization of
income from the business
Whether the income was earned with the aid and assistance of family funds.
Formation of a HUF
A HUF springs from a common male ancestor and consists of descendants of such common
male ancestor in the male line, their spouses and unmarried daughters. Every male Hindu,
while he is also a member of a HUF, can create a HUF with his own descendants, which are
a part of the bigger family and constitutes a branch of the main family. This can further
extend to sub-branches. The branches are not recognized as a separate entity for income
tax purposes unless there is a partition of the main HUF and assets devolve upon the
branches.
Partitions have been used for creating a large number of taxable units enabling the Karta to
arrange the affairs of the family in such a manner that the income of the family is divided
among various branches and consequently reduce the incidence of taxation.
A Hindu male with his sons and grandsons constitute a HUF but it may not own any
property where there is no inheritance.
Members of a joint family may by their joint labour, earn income and acquire property.
HUF assets can also be created by individual members contributing their personal assets
into the common pool of the HUF. However implications of the provisions of the Income
Tax Act have to be considered in such a situation where there are no existing HUF assets.
As per deeming provisions where an individual contributes his personal asset to the HUF,
income from such asset will be taxed in his personal capacity only. However income from
such income is the asset of the HUF. For instance suppose a member contributes a
commercial property to the HUF which lets it out on rent for Rs 1 lakh, the income is taxed
in the hands of the individual. However if the HUF earns an interest of Rs 10000 by
investing the 1 lakh, it is considered the asset of the HUF and Rs 10000 is taxed in the
hands of the HUF
A new HUF may receive gifts from outsiders or from father or brothers of the Karta who are
not members of the donee HUF. All such receipts will be added to the family fund without
attracting the deeming provisions as mentioned above.
Another mode of creation of an HUF is through a Will, but the intention of the bequest
being for the family has to be made absolutely clear in the Will.
Partial or Total Partition of an Existing HUF results in the creation of a number of smaller
HUFs because on partition the coparceners are allotted family assets as heads of their
respective family branches,
HUF and Income Tax
Under section 2(31) of the Income Tax Act , 1961 a HUF is a ‘person’ and consequently an
assessee under section 2(7) subject to taxation as a separate legal entity. Slabs of taxation
as are applicable to a resident male shall be applicable to a HUF. Section 10(2) further
specifies that no liability to income tax shall be attracted or imposed on any member of a
HUF in respect of any sum received by him/her as a member of the family whenever such
sum has been paid out of income of the family. This however is subject to the applicability
of the deeming provisions.
Under section 18 of the Hindu Adoption and Maintenance Act, 1956, a Hindu wife, shall be
entitled to be maintained by the husband, and be entitled to live separately without
forfeiting the right of maintenance under certain circumstances. Section 19 provides for the
entitlement of maintenance by her father-in-law after the death of her husband while
Section 20 speaks about maintenance of children and aged parents. Any payments made by
a HUF out of its income to a Hindu married woman, widow, children and aged parents
under the provision of these sections are exempt from tax in the hands of the recipient.
As regards return of income, it shall be submitted in the paper or electronic form in Form
ITR 2 if it does not have income from business. Where the HUF has income from business it
shall be submitted in Form ITR 4. If the provisions of Tax Audit apply, then the returns are
to be mandatorily filed in the electronic form. The returns have to be signed and verified
by the Karta, and where the Karta is absent from India or is mentally incapacitated from
attending to his affairs, by any other adult member of the family.
Determination of Residential Status for the purpose of taxation is provided under section
6(2). Accordingly a HUF is considered a resident in India where during the year the control
and management of its affairs is situated wholly or partly in India. Where the control and
management of its affairs is situated wholly outside India it is considered a non-resident.
Where a HUF is considered a resident by virtue of the above provisions, it is considered to
be a resident and ordinarily resident if the Karta is a resident for two out ten years
immediately preceding the Previous Year or has been in India for more than seven hundred
and twenty days in the seven years immediately preceding the Previous Year. Otherwise it
is considered a resident but not ordinarily resident.
Normal provisions relating to Capital Gains tax as are applicable to individuals shall apply
to HUFs as well. Exemption under section 54, 54D, 54EC, 54ED, 54F, 54G, and 54H has been
extended to HUFs as well. However determining the cost of acquisition of assets under
some circumstances poses some problems. The cost to the previous owner shall be
considered as the cost of acquisition in the following circumstances where the capital asset
became the property of HUF
- on any distribution of assets on a total or partial partition of a HUF
- under a gift or Will
- by succession, inheritance or devolution
- by modes referred to under section 64(2) of the Income Tax Act – deeming
provisions
Under section 64(2), which provides for clubbing of income in respect of self-acquired
property thrown into the common pool of the HUF, the income from such property will be
clubbed in the hands of the individual though he has divested himself of his separate
interest in the property and retains only the coparcenary interest therein. If the blended
property is later on subjected to a total or partial partition amongst the family members,
then the income derived from such property “as is received by the spouse or minor child on
partition shall be deemed to arise to the spouse or minor child from assets transferred
indirectly by the individual to the spouse or minor child” and accordingly the income will
be clubbed in the hands of the individual. However where funds are advanced as returnable
loans the above provisions does not apply.
According to the Income Tax Act, 1961, in a case where there is an impartible estate, the
holder of the impartible estate shall be deemed to be the individual owner of all the
properties comprised in the estate.
HUF and Wealth Tax
According to section 3 of the Wealth Tax Act. 1957,wealth tax is charged on the net wealth
of a HUF as on the corresponding valuation date at the rate of one percent of the amount of
net wealth in excess of Rs Thirty Lakhs.
It is to be noted that the net wealth will be taxable in the hands of the HUF only if it is the
real owner of the property or wealth concerned and its members do not have definite or
ascertained share in the HUF property. HUF can be assessed to wealth if there is unity of
ownership and unity of possession in respect of the HUF.
To constitute a HUF there must be more than one member and one member cannot by
himself constitute a HUF. Though a coparcener receiving a share on partition of HUF can
form a HUF when he marries, yet until his marriage, he cannot be assessed as a HUF.
Where a member throws his private property into the pool of HUF property, such assets
will be considered as assets in the hands of the individual and not the HUF. Where the said
property is the subject property of a partition, the converted property or any part thereof
which is received by the spouse of the individual shall be deemed to have been transferred
to the spouse indirectly by the individual and clubbed in the hands of the individual.
A Karta of a HUF may on certain occasions, make gifts to his spouse, to his unmarried and
married daughters and other relatives. The courts have held that, though the validity of the
gifts can be questioned, however for the purposes of Wealth Tax, a gift made ceases to be
an asset of the HUF and though voidable the transfer is not revocable and thus the assets
are not subject to Wealth tax in the hands of the HUF.
It is to be noted that the Wealth Tax is charged on the wealth as on the last moment of the
valuation date. Thus if there is any partial or total partition of the HUF before the valuation
date, such partitioned assets cannot be taxed in the hands of the HUF. In case there is a
partial partition, where on the valuation date, property was partly distributed to the
members without disrupting the HUF, the distributed wealth does not belong to the HUF
and cannot be included in its wealth.
However, the situation is different where a total partition is recognized on the valuation
date under section20 where it is provided that if partition had taken place on the last day of
the previous year, and the Wealth Tax Officer has recognized the partition, then each
member or group of members shall be jointly and severally liable for the tax assessed on
the net wealth of the HUF. Thus the assessment has to be made on the HUF as it existed
before the partition and not on the smaller HUFs formed as a result of total partition.
Partial partition is not covered by this section.
As regards exemptions provided under the Act, the interest of the assessee in the
coparcenary property of the HUF of which he is a member is exempt from taxation in his
individual hands. Further One house or part of a house belonging to a HUF is exempted
from taxation.
Where the ownership of assets is in dispute, the asset may be in possession and enjoyment
of one but the ownership may be claimed by another. Under such circumstances, it is open
to the assessing officer to include the asset in the net wealth of both the taxpayers
simultaneously and ultimately retain the finally upheld in appeal, cancelling the other. Such
assessments are called protective assessments
Partition of HUF
A partition in a HUF can happen in two modes – a complete partition or a partial partition.
In a complete partition all constituents of the family and all properties of the family are
distributed resulting in the creation of new smaller HUFs and the cessation of the existing
HUF. In a partial partition, only some of the constituents or some of the properties go out
resulting in new smaller HUFs while the existing HUF continues to remain and function
without the branches.
Since the interest of a coparcener fluctuates on birth and death in the family, unless and
until there is a partition in the family, a member’s share cannot be determined in definite
terms. A Partition may be effected by volition of parties or by arbitration or a deemed
partition based on the operation of law. A partition is said to be complete when by
agreement or otherwise the share of coparceners in the family are defined, and properties
distributed. Until the partition has led to the physical division of the properties, the
incomes derived from such properties will continue to be assessed in the hands of the HUF.
There is a change in ownership of property as a result of partition but it does not involve
transfer of property.
Under Hindu Law it is not necessary that the partition should be effected by a registered
partition deed. Even a family arrangement is enough to effectuate the partition between
coparceners and to confer right to a separate share and enjoyment thereof. Every
coparcener has got a right to become divided at his own will and option whether the other
coparceners agree and consent to it or not. A division in status takes place when he
expresses his intention to become separate unequivocally and unambiguously and the
filing of a suit for partition is considered a clear expression of such an intention and that in
consequence there is a severance in status when the action for partition is filed.
It should be noted that conversion of a member to Islam or Christianity operates as a
severance of the joint status as between him and other members of the family and
extinguishes the right of survivorship as between the convert and other coparceners and
he ceases to be a coparcener from the moment of his conversion
On a partition the shares are allotted as under
- In case of a HUF which includes father, mother and sons, mother has no right to
claim partition but when a partition is actually effected she takes a share equal to
the sons
- In case of a HUF which includes father and sons and where the mother is not living,
each son takes a share equal to that of the father i.e. all have an equal share
- If joint family consists of brothers, they take equal shares on partition
- Each branch of a HUF takes an equal share as regards other branches, and members
of each branch take equal share as regards other members within the branch.
- Unmarried daughters have the same share on partition as their brothers.
The issue whether a partition can be construed as a transfer under the Income Tax Act or
the Gift Tax Act has been brought up many times. The Madras High Court had held that
partition is really a process in and by which a joint enjoyment is transformed into an
enjoyment in severality. Each one of the shares had an antecedent title and therefore no
conveyance is involved in the process, as a conferment of new title is not necessary. The
Supreme Court has held that the word ‘transfer’ used in the Acts was used in the strict
sense and not in the sense of including every means by which property may be passed from
one to another. The Court further held that a partition could not be considered as cross gift
or indirect transfer.
Where a HUF has only an undivided interest in a property, the only division that is possible
is by specifying and separating the shares of the members and the division of income. Such
a partition is valid and upheld by courts. Further a family business cannot be divided into
parts in the same manner as a piece of land. Division is possible only by making entries in
books of accounts and such division is quite legal and acceptable.
A partition once made is final in Hindu Law and cannot be reopened. However there are a
few exceptions to this.
In case of fraud by one coparcener which gives him an undue advantage in the
partition
In case a creditor has obtained decree of a court against a coparcener before the
partition
In case by mistake an allotment made to a coparcener is a property under unsettled
mortgage or a property belonging to an outsider, a readjustment may be called for
In case any property of the HUF has been missed to be partitioned
It is to be noted that even after a total partition there may arise circumstances where some
or all of the coparceners wish to reunite, undoing the earlier separation. The effect of such
an action is to remit the reunited members to their former status as members of a HUF. Just
as a HUF can be partitioned based on an oral arrangement, the members can reunite based
on an oral arrangement. However, where the earlier partition was viz a registered deed,
then reunion must mandatorily be viz a registered deed.
Partition and Income Tax Act
Section 171 of the Income Tax Act, 1961 provides for an assessment of HUF after partition.
The Income Tax Act recognizes only total partition of the HUF.
Where there has been a total partition during the year
- The total income of the HUF in respect of the period up to the date of partition shall
be assessed as if no partition had taken place
- Each member or group of members shall, in addition to any tax or which he or it
may be separately liable, be jointly and severally liable for the tax on income so
assessed
Where there is a partial partition
- It shall not be recognized under law.
- The HUF shall continue to be assessed as if no such partition had taken place
- Each member or group of members of such HUF immediately before the partial
partition and the HUF shall be jointly and severally liable for any tax, penalty,
interest, fine or any other sum payable under the Income Tax Act.
For the purpose of determining the several liability of any member or group of
members there under, it shall be computed according to the proportion of the property
allotted to him or it at the partition
A petition challenging the validity of the above provision, invoking Article 14 of the
Constitution, was dismissed by courts and it was held that the provisions are in conformity
with Constitutional Provisions
Landmark Decisions on the principle of HUF
Krishna Prasad v. CIT – 97 ITR 493 (SC)
On partition between father and sons, the shares which sons obtained on partition
of the HUF with their father, is considered to be the ancestral property of the son’s
HUF, as regards the grandsons of the father. Therefore one of the sons who was not
married at the time of the partition will receive HUF property, however income
therefrom will be taxed as HUF Income from the date of his marriage.
A.G v. A.R. Arunachalam Chettiar – 34 ITR 421 (PC)
A Mitakshara HUF consisted of father and son. On death of a son, the father and the
widow of the son constitute the HUF.
Gowli Buddanna v. CIT – 60 ITR 293 (SC)
A joint family may consist of a single male member with his wife and daughter and it
is not necessary that there should be two male members to constitute a joint family
N V Narendranath v. CWT 74 ITR 190 (SC)
The property received by a coparcener on partition of the HUF is the HUF property
in his hands vis-a-vis the members of his branch i.e. with his wife and daughter
L Hirday Narain v. ITO 78 ITR 26 (SC)
After the partition between the father and his sons, the father and his wife
constitute a HUF which gets enlarged on the birth of a son.
CIT v. Veerappa Chettiar 76 ITR 467 (SC)
Even when a HUF is reduced to female members only it continues to be a HUF
CIT v. Sandhya Rani Dutta 248 ITR 201 (SC)
Female members cannot create or form a HUF by their acts even under the
Dayabagha School of Hindu Law
Pushpa Devi v. CIT 109 ITR 730 (SC)
The right to blend the self acquired property with HUF property is restricted to a
coparcener (male member of HUF) and not available to a female member. However,
there is no restriction on a female member gifting her property to the HUF of her
son.
Surjit Lal Chaabda v. CIT 101 ITR 776 (SC)
The property which was thrown into the common pool was not an asset of a pre-
existing HUF of which the assessee was a member. It became an item of HUF
property for the first time when the assessee threw what was his individual
property into the common pool. Therefore the property may change its legal
incidence on the birth of the son, but until that event happens, the property, in the
eye of the Hindu Law, is really the property of the assessee.
Tax Planning Prospects through HUF
Tax Planning
Evading payment of tax is quite different from tax planning. A person may plan his finances
in such a manner, strictly within the four corners of the taxing statute that his tax liability is
minimized or made nil. If this is done and is observed strictly in accordance with and taking
advantage of the provisions in the Act, by no stretch of imagination can it be said that
payment of tax has been evaded.
Certain areas of taxation laws provide incentives with a view to either encourage savings or
investments in areas which are considered desirable in the interest of the economy as a
whole. Tax planning is as much concerned with the fuller utilization of the provisions of
incentives in the tax laws as with the avoidance of tax by so arranging one’s affairs within
the ambit of law, so as to attract the least amount of tax.
For considering tax planning through a HUF the first and foremost emphasis is to be given
to creation of a family nucleus or creation of a smaller HUF while the bigger HUF is living
and active.
Partition
Partial partition of HUF had been one of the important devices for reducing liability to
direct taxes by creating new taxable entities, being smaller HUFs or individuals which
enabled spreading the wealth. However the concept of partial partition had been
derecognized under law since 1978. The Assessing Officer does not recognize any partial
partition that may have occurred during the year at the time of assessment and completes
his assessment as if no such activity had taken place. However there arises a peculiar
situation whereby, according to law this derecognition can be accorded by the Assessing
Officer only if the HUF had been assessed as such prior to the partition. In case of a HUF
where no assessment has been completed hitherto, the above regulations do not apply.
Thus, if a HUF has been earning income which was not liable to be assessed or which is
below taxable minimum, it is not covered under section 171 of the Income Tax Act and can
therefore go in for partial partition of its assets.
Reunion after Partition
Where there is an ambiguity of whether a partial partition would be acceptable to the
authorities, one option available is to go in for total partition of the HUF assets and
subsequently those smaller HUFs who wish to be together can go in for a reunion with their
partitioned assets. Effectively this would replicate the objectives of a partial partition but
however the same would be within the ambit of law.
Vesting of Individual Property in the HUF
Every coparcener is entitled to throw his self acquired property into the common asset
pool of the HUF being either a bigger HUF of which he is a coparcener along with his
brothers or a smaller HUF with his wife or sons – of which he is also the Karta. By doing so,
the income of the individual is split into two parts – one taxable in his own hands and one
taxable in the hands of the HUF of which he is a Karta.
However the deeming provisions of Income Tax Act have to be considered for this aspect.
Accordingly, any income from assets so vested will be taxed in the hands of the individual
only and not the HUF, thereby overriding the above mentioned benefits. However it has to
be noted that the income is still the asset of the HUF and any further accretions of income
on such deemed income will not be clubbed and will be taxed in the hands of the HUF only.
Further it is also possible for the individual to relinquish his interest in the HUF after
vesting his property. By this he is no longer a coparcener of the HUF when the income
accrues and therefore the deeming provisions are avoided. The income will be taxed in the
hands of HUF only.
Comparison of HUF with Partnership, LLP and Company
Basis HUF Partnership LLP Company
Legislature Codified Hindu Law viz.
Hindu Marriage Act, 1955
Hindu Succession Act, 1956
Hindu Minority and Guardianship Act, 1956
Hindu Adoption and Maintenance Act, 1956
The Partnership Act,
1932
Limited
Liability
Partnership
Act, 2008
Companies Act,
1956
Dividend
Distribution
Tax
Not Applicable Not Applicable Not Applicable Applicable
Separate
Legal Entity
Yes Yes Yes Yes
Ratio of Profit
Sharing
Profits part of HUF and members are not
entitled to any share as such. However
sharing is done in equally amongst on all
members.
As per agreement/deed As per
agreement /
deed
As per share
holding ratio
Wealth Tax Applicable Not applicable directly
however indirectly liable
in the hands of partners.
Not applicable
directly
however
Applicable
indirectly liable
in the hands of
partners.
Ease of
Formation /
Entry
Created By law and not by act of parties Oral or Written Deed –
May or may not be
registered
To be
Registered
with MCA –
Cumbersome
process
To be Registered
with MCA –
Cumbersome
process
Compliance
Requirements
No regular compliance requirements as per
law.
No regular compliance
requirements as per law.
Cumbersome
Compliance
Requirements
Cumbersome
Compliance
Requirements
Winding up /
Exit
Can be Closed by Partition Can be closed by
dissolution of
partnership
Cumbersome
Approval
Process
Cumbersome
Approval Process