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This article has been written by Ashutosh Singh, a student of BA.LLB(H) at Amity Law School, Amity University, Kolkata. The article is an attempt to explain what a HUF is and its advantages and disadvantages are discussed at length.


India is a big country having people belonging to different religions and faiths. They are governed by different personal laws. The Hindus who are in majority are also governed by a different set of personal laws concerning family affairs, such as succession, marriage, and divorce. The moment a Hindu male gets married he is eligible to create a HUF. It is one gift that all Hindus get from by virtue of Hindu Law on marriage. It is not necessary to have children to create HUF. Forming a HUF is that simple but most people are unaware that a HUF structure is also an effective way of saving taxes. Under the Income Tax Act, 1961. Sikhs, Jains, and Buddhists can also create a HUF although they are not governed by the Hindu Laws.

Hindu Undivided Family

‘HUF’ stands for Hindu Undivided Family or Hindu Joint Family. The name itself suggests that it would be a big family with many members. The HUF is actually a unique type of business entity, a separate legal entity as per the Income Tax Act, 1961. The term ‘HUF’ in the Act is used in the sense that it is understood in the Hindu personal laws. Actually, HUF is not defined in the Income Tax Act, 1961 but it was included within the meaning of the term ‘person’ in Section 2(31) of the Act. It was excluded because the legislature wanted the meaning of HUF to be the same as what it is in the Hindu Law.

According to Hindu Law, all the people in a HUF are lineal descendants of a common ancestry which is compulsory. The family here includes their wives and unmarried daughters, who are living together and do common things such as eat food, worship together and have a common estate/business. The female members such as windowed daughters who have returned to their father’s home, daughters-in-law are part of a HUF. The daughter after her marriage becomes a member of her husband’s HUF and ceases to be a member of her father’s HUF. Members of a HUF are related to each other by blood, marriage, or adoption.

In the case of Surjit Lal Chabra vs CIT, it was made clear by the apex court that a ‘Joint Family’ and ‘Hindu Undivided Family’ are synonymous. The court further went on to clarify that a joint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and unmarried daughters also. The daughters once married stop being a member of their husband’s family.

HUF is a creation of law and it cant be created by an act of the parties, except in the case of reunion (Bhagwan Dayal vs Reoti Devi) or adoption (Surjit Lal Chhabra), where it comes into existence by the act of the parties.

It is a constantly changing body, its size increases with the birth of a male member in the family and decreases on the death of a family member. Females go and come into Hindu Undivided Family on marriage. A HUF can’t be created under a contract. It is automatically created in a Hindu family. People of other religions such as Buddhists, Jains, and Sikhs are not governed by the Hindu Law, but they are treated as a HUF under the Income-tax Act 1961.
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The Family structure of Hindu undivided family

A married Hindu couple itself can constitute as a HUF if any ancestral property is received by it. So, a new HUF can only come into existence after the birth of a child in the family whether a boy or a girl. When there is only a single male in the Hindu family, a HUF comes into existence automatically when he marries.


A HUF is managed by Karta who is usually the senior-most living male member of the family. Karta has some unique powers by which he can decide how the joint family is being run, how the members are being maintained, and who is getting what. He can choose to dispose of the property in case of an emergency or when there is a necessity to do so. A Karta can also delegate some of the powers of management of affairs to a manager. The manager need not be a family member of the HUF and can also be a paid employee instead.

In a landmark judgment in 2016, Delhi High Court clarified the status of women as Karta of a HUF. The court said in its verdict that daughters can also become Karta of the HUF. The rights of females under Section 6 of the Hindu Succession Act, 1956 has been expanded with this clarification. So HUF is a unit and all its affairs are represented and looked after by the Karta, and no outsider can be admitted to its fold except by adoption by agreement or otherwise.

The following can be members of HUF:

  1. All persons lineally connected in the male line and having a common ancestor.
  2. Unmarried daughters
  3. Wife 
  4. Widows of deceased male members
  5. Married daughters who have since then returned to their parent’s house after the death of their husband.
  6. Any person related by adoption
  7. Collaterals
  8. Dependants
  9. Son who is born from a marriage between a Hindu male member and a Christian woman under The Special Marriage Act, 1954.
  10. Illegitimate children are also treated as members of their father’s family.

Let us consider the case Narendranath vs Commissioner of Wealth-tax. In this case, the Apex Court held that the term ‘HUF’ in the Wealth Tax Act is used in the sense in which a Hindu joint family is used in the Hindu Personal Law. Here a joint family may have a single male member, his wife and their daughters, and there is no provision in the Wealth Tax Act that says that a HUF as an assessable unit must have at least two male members.


They were the male members of a family but after the amendment of the Hindu Succession Act in 2005, the gender discrimination was removed granting equal rights to women also and now daughters too can be coparceners of HUF. Coparceners are limited to four generations only i.e., father, his son, grandson, and great-grandson. But after the 2005 amendment of the Hindu Succession Act, women are also coparceners. However, Coparceners can’t be without a common male ancestor. The concept of HUF is not based on a property at all. A family with no property can also be a HUF. A coparcener has a reserved right in the ancestral property since the moment of their birth. It is important to bear in mind that a coparcener and member of HUF are not the same. A member of HUF need not be a coparcener. But a coparcener is a member of HUF. A coparcener is a male or female who is within 4 degrees in lineal descent from the common male ancestor.

It has been held in Gowli Buddanna vs CIT that to constitute a joint Hindu family, it is not necessary that there has to be more than one coparcener in the family, even a husband and wife can validly constitute a HUF.

Interestingly, there can be a HUF within another HUF. For example, a son can have his own HUF and continue to be a member of his father’s HUF. In his HUF, he is the Karta but in his father’s HUF he is a coparcener.

Schools of Hindu law

There are two principal schools of Hindu Law. They are the Dayabhaga School and Mitakshara School. The Dayabhaga school of Hindu law runs in the area governed by the erstwhile state of Bengal i.e., Bengal, and Assam. The Mitakshara school of Hindu law prevails over the rest of India. 

Unlike the Mitakshara law, in Dayabhaga law the HUF can’t come into existence as an operation of law automatically, but it comes into existence by the voluntary decision of the legal heirs. In Mitakshara law the son/daughter (after the 2005 amendment to the Hindu Succession Act) gets a share in the family property on conception itself. In Dayabhaga law the son doesn’t get a share in the family property by birth. As long as the father is alive, the son doesn’t have any interest in the family property.

Broadly the main difference in the 2 schools of Hindu law is in the areas of inheritance laws, certain incidents of joint family, and in a partition. A HUF can acquire property from different sources like, by way of gift, through a will, existing properties, joint labour, etc. A self- acquired property of a Hindu male will be inherited by his legal heirs as per the rules of succession and will receive property as an individual property. The same condition applies to the share of the deceased coparcener in HUF, which transfer by survivorship to the other coparcener who is next in succession, which is separate property.

Residential Status of Hindu undivided family

The HUF is a unique type of business entity, a separate legal entity as per the Income Tax Act. Before we understand the Residential status of HUF, let us understand the following:

  1. Income earned in India or Indian income is taxable in India whether the person earning the Indian income is residing within the country or abroad and is a non-resident.
  2. Likewise, the foreign income of a person is taxable in India only when the person is residing in India. However, the foreign income of a person not residing in India is not taxable in India.

So as for Income Tax, taxpayers are divided into 3 categories of people based on their residential status. They are:

  1. Non-resident
  2. Resident and ordinary resident
  3. Resident but Not ordinary resident

The residential status of HUF under the Income Tax Act is determined by referring to the previous relevant year to a particular assessment year. This means that the residential status of HUF is not the same for all assessment years but varies depending on the relevant previous year.

When Hindu undivided family is a Resident in India

A Hindu undivided family as per Section 6(2) of Income Tax Act, 1961 is supposed to be a resident of India only if the management and control of its affairs are partly or completely situated in India. It is not enough to own a house in India where some family members are residing. The Karta or the manager of the family has to be resident in India for at least 2 years out of 10 years i.e at least 730 days or more immediately preceding the previous year. Also, the place where he manages and controls his HUF should be in India.

Further, HUF residency is determined by whether

Hindu undivided family is a resident and ordinarily resident in India

  1. This depends on the Karta/manager of the HUF. He has to be resident  for at least 2 years of the 10 previous years immediately preceding from the immediate previous year or
  2. He must be in India for a minimum of 730 days or more during 7 previous years immediately preceding from the relevant previous year

Hindu undivided family is a Resident but not ordinarily resident in India

If in the relevant previous year the Karta/manager doesn’t fulfil any of the conditions or both the conditions as mentioned in clauses (a) and (b) then he is treated as resident but not ordinarily resident in India.

When is Hindu undivided family a Non-Resident

A HUF is non-resident in India under the condition that during the previous year to the assessment year, its Karta has been residing outside India, and the control and management of the HUF and its affairs were handled totally outside India.

Tax implications of forming a Hindu undivided family

Taxation of Hindu undivided family

To understand how a HUF is taxed, let’s consider an example of Mr. A. Mr. A got married, and after a few years when he had children, started a HUF with his wife, his daughter, and son as its members. Since Mr. A had no brothers and sisters his father’s property was transferred in the name of his HUF after his father’s death. Mr. A’s father’s property earns him a rental income of Rs 7.5 lakhs per annum. Mr. A himself earns Rs 20 lakhs per annum by way of salary. The following calculation shows how Mr. A’s HUF will be taxed.

Sources of income of Mr A before the formation of HUF

  • Salary: Rs 20,00,000
  • Rent: 7,50,000
  • Standard deduction on rent property: Rs 2,25,000
  • Net income from rented property: Rs 5,25,000
  • Total taxable income: Rs 25,25,000
  • Deduction (Section 80C): Rs 1,50,000
  • Net taxable income: Rs 23,75,000
  • Tax payable: Rs 5,53,625

Sources of income of Mr. A after the formation of HUF

  • Salary: Rs 20,00,000
  • Rent: Nil
  • Standard deduction on rent property: Nil
  • Net income from the rented property: Nil
  • Total taxable income: Rs 20,20,000
  • Deduction (Section 80C): Rs 1,50,000
  • Net taxable income: Rs 18,50,000
  • Tax payable: Rs 3,91,400

So it’s obvious from the above example about the tax benefits that one can get by forming a HUF.

HUF once formed should have its PAN number and file a separate tax return. HUF can claim deductions and exemptions under Section 80 of the IT Act, 1961 in its income tax returns. Moreover, a HUF rate of taxes is the same as an individual’s. If the members contribute to the functioning of the HUF then they can even be paid a salary which can be deducted from the income of the HUF itself. A HUF can even take an insurance policy in the name of its members. 

Tax assessment in case of partition of Hindu undivided family

Partition here means the division of property.  The partition can be partial or total. When the partition of the property is total, then it is divided among all the coparceners and the family ceases to exist as an undivided family because nothing is joint anymore. When some coparcener breaks from the family the property related to his share is transferred to him and the remaining family continues to be a HUF. Also, the remaining property belongs to the HUF after partial partition. 

Assessment of Partial partition

This is possible under the provision of Section 171(9) of the IT Act, 1961 and the following conditions need to be fulfilled for that.

  1. The partial partition should not have taken place before 31st December 1978.
  2. This partial partition should have taken place when the assessee was a HUF and this option is not there if the assessee was earlier not a HUF.

Only if these 2 conditions are satisfied, the sources of income will belong to the HUF and the benefits of HUF will be earned.

In the case of Shankaraih Yadav vs ITO,  it was held that setting aside certain assets in favour of certain coparceners after partial partition, on the condition that they will not make any claim on the HUF property, the assessing officer under Section 171(9) of IT Act,1961 may ignore such partition.

Assessment of Total partition

When the total partition has taken place then the HUF ceases to exist and hence the coparceners that were there will now be assessed as individuals only and not as a HUF.


Advantages of HUF

  • HUF is treated like an individual, a separate person, it is created by law and it is taxed separately from its members. Under this, a HUF has a separate exemption limit under the IT Act,1961. It has separate deductions under Sections 80(G),  80(C), 80(D) ,and Section 80(D)(D).
  • Members and Karta can even take a salary from the HUF.
  • HUF gets to avail an additional PAN number and identity separate from its members and hence the income tax can be split into smaller amounts resulting in tax savings.
  • The management affairs and control of HUF is generally in the hands of the Karta. The Karta is the only person who exercises control over the business. He is not required to consult anyone before taking a decision as regards to the HUF and this ensures prompt or quick decisions. Also, the manager/Karta has all the rights to sign the documents on behalf of other members.
  • The existence of the HUF is not threatened on the death or retirement of the Karta or any other member and it will continue.
  • A HUF can also benefit from the exemption of capital gain.
  • A HUF can invest in Primary and Secondary markets by having a separate Demat Account from its members.
  • There is no requirement for ancestral joint family assets/property for the HUF to exist.
  • Now the daughter has the same right as the son to be a coparcener and allotted the same share in the property as the son. So they too can be Kartas.
  • One can have non-resident HUF also if its management and control is done from outside India.
  • An Adopted child is also accepted as a member of HUF.

Disadvantages of Hindu undivided family

  • Getting additional capital from the market is difficult since no outsider other than family members can be a part of the HUF unless by reunion or adoption. The scope and expansion of the business is limited due to this.
  • Since Karta is wholly responsible for the HUF decisions, he may be overburdened and at times even be held responsible for other member’s actions. Moreover, he may not be qualified to handle the affairs of the HUF.
  • Starting a HUF is easy but partitioning or closing it is cumbersome as then the assets need to be distributed among all the members which can be a considerable task in itself.
  • There is also a problem of overdominance by the Karta who could very well misuse his powers since no member can interfere in his management.
  • Since there is no limit to the number of members in a HU and every birth and marriage in the family changes its structure it becomes complex to manage.

One can have non-resident HUF also if its management and control is done from outside India.


Changing times and difficulty in managing HUFs because of its joint assets and large family structure is making HUFs dwindle in popularity. For a HUF to function it is very important to have a good relationship in the joint family and this becomes difficult when people have divergent views and can lead to legal disputes. Earlier most households were joint families and hence HUF as a business entity made sense. But now with the trend towards nuclear families and increased divorce rates, HUF despite its tax saving measures doesn’t appear that lucrative. HUFs can nevertheless prove to be an important tax-saving tool if it is well thought of and formed.




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