Know income tax benefits of Hindu Undivided Family structure

HUFs are treated as separate taxpayers under Income Tax Act in India; income of HUF is taxed separately from individual income of its members

- SACHIN KUMAR

IMPLEMENTATION of the Uniform Civil Code (UCC) has caused widespread discussions and debates in the country, and has divided political leaders and analysts on the issue. Tax experts agree that its implementation will affect taxpayers who use Hindu Undivided Family (HUF) for tax planning. After its implementation, the concept of HUF will cease to exist which would have implications for individuals and corporates in terms of tax benefits.

Currently, the HUF, as a separate tax unit, enjoys exemptions, deductions, and a distinct tax exemption limit. Once UCC is implemented, these tax benefits associated with the HUF would no longer be applicable, which would force many taxpayers to rework their income tax planning.

What is a HUF

HUFs have a separate tax identity and are treated as separate taxpayers under the Income Tax Act in India. They are eligible to claim tax deductions, exemptions, and other benefits available to individuals and businesses. HUF income is taxed separately from the individual income of its members.

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. Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act. A HUF has its own PAN and files tax returns independently of its members.