04 October 2021
Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family. An HUF is recognized as a separate assessable entity under the Act. Its income may be assessed if following two conditions are satisfied:
There should be a coparcenership. In this connection, it is worthwhile to mention that once a joint family income is assessed as that of HUF, it continues to be assessed as such in subsequent assessment years till partition is claimed by coparceners. There should be a joint family property which consists of ancestral property, property acquired with the aid of ancestral property and property transferred by its members. 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 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 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 join family property, income from such property is not taxable in 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 Taxif the tax payable is less than 18.5 per cent (including cess and surcharge) of "Adjusted Total Income" subject to prescribed conditions.
CAclubindia
