Hindu Undivided Family (HUF) Income

Income Tax10/12/2023

Concept of Hindu Undivided Family (HUF)

A Hindu undivided family (HUF) is treated as a separate entity for the purpose of assessment under the Income-tax Act, 1961. It is included in the definition of the term “person” under section 2(31). The levy of income-tax is on “every person”. Therefore, income-tax is payable by a HUF. "Hindu undivided family" has not been defined under the Income-tax Act. The expression is, however, defined under the Hindu Law as a family, which consists of all males lineally descended from a common ancestor and includes their wives and daughters.

The income taxable in the hands of an HUF is computed under four heads of income and tax thereon shall be computed as per the tax rates applicable for that previous year.

Assessment of Hindu Undivided Family (HUF)

The income of a HUF is to be assessed in the hands of the HUF and not in the hands of any of its members. This is because HUF is a separate and a distinct tax entity.

Computation of total income of HUF

The following points should be taken into consideration while determining the total income of HUF-

Income from the transfer of a self-acquired property by an individual to his HUF for inadequate consideration or conversion of the self-acquired property into property of the HUF is not considered as the income of the HUF. It would be included in the income of the individual member who transferred the property to the HUF.
Income from an impartible estate is included in the hands of the holder of the estate and not in the hands of the HUF. Even if the impartible estate is owned by the HUF, income from such estate is includible in the hands of the holder of the estate who is the eldest member of the HUF.
Section 10(2) exempts any receipt by an individual as a member of a HUF out of the family income.
If a member of the HUF receives any fee or remuneration as a director or a partner in a company or firm as a consequence of the investment made in such concern out of the funds of the HUF, such fee/remuneration shall constitute income of the HUF. However, any such fee or remuneration earned by a member of a HUF as a director or partner for services rendered purely in his personal capacity, will be included in the income of the individual member and not the HUF.

Exercise of option under section 115 BAC

HUFs can also exercise the option to pay tax availing concessional tax rate available under section 115 BAC, subject to certain conditions to be satisfied. As per section 115 BAC, individuals and HUF have an option to pay tax in respect of their total income (other than income chargeable to tax at special rates under Chapter XII) at following concessional rates, if they do not avail certain exemptions/deductions like Leave Travel Concession, standard deduction under the head “Salaries'', interest on housing loan on self occupied property, deductions under Chapter VI-A [other than 80CCD(2) and section 80JJAA.

Income	Rate of Tax
Up to Rs. 2,50,000	NIL
From Rs. 2,50,000 to Rs. 5,00,000	5%
From Rs. 5,00,000 to Rs. 7,50,000	10%
From Rs. 7,50,000 to Rs. 10,00,000	15%
From Rs. 10,00,000 to Rs. 12,50,000	20%
From Rs. 12,50,000 to Rs. 15,00,000	25%
Above Rs. 15,00,000	30%

Rates of surcharge applicable to HUF

The Finance (No.2) Act, 2019 has levied an enhanced surcharge of 25% and 37%, where the total income of individuals/HUF/AOPs/BOIs/artificial juridical persons exceeds Rs. 2 crores and Rs. 5 crores, respectively.

Salary from HUF

Salary paid to Karta for managing the family’s business	Salary paid to member
If remuneration is paid to the Karta of Hindu undivided family under a valid agreement which is bona fide and in the interest of and expedient for the business of the family and the payment is genuine and not excessive, such remuneration would be an expenditure laid out wholly and exclusively for the purpose of the business of the family and would be allowable as an expenditure	A Hindu undivided family can be allowed to deduct salaries paid to member of the family if the payment is made as a matter of commercial or business expediency, but the service rendered must be to the family

Gifts from and To HUF

Gifts by HUF

Gifts to HUF

A HUF as such is incapable of making a gift to any of its member. However, the Karta of a HUF has power to gift out of joint family property for certain approved purposes. The gift should be reasonable. For example, a father may make a gift of the ancestral moveable properties of the joint family, of which he is the Karta, for the purpose of discharging duties prescribed by Hindu Law. The income of the joint family will stand reduced to the extent to the income arising out of the assets thus gifted out

(A) If the HUF to which such a gift is made consists of only one coparcener, then the gifted property can be held by the members of the family only as tenants-in common, i.e., the income arising out of such gifted property can be assessed as income in the hands of the Association of Persons (AOP).

(B) If the HUF to which such a gift is made consists of minimum of two coparceners, then the gifted property can be held by the members of the family as joint tenants and the income arising out of such gifted property can be assessed as income in the hands of the joint Hindu family.

Business in the personal capacity of the Karta or member

Where the Karta or any member of a joint family carries on a business in his personal capacity, the income from any such business would constitute his personal income. It does not matter even if the business of the member and of the joint family are identical in nature and size.