Recently, the Indian law commission initiated a new discussion on the Uniform Civil Code. Public sentiment on the issue has sparked debate about HUF and its differential treatment under the country’s tax laws.
Hindu undivided family
The British during the colonial period adopted local customs and thus the Hindu Undivided Family survived the colonial period and continued to be a part of Indian society. The Hindu Undivided Family is considered to be an organization that operates based on the nature of kinship and blood relationships. The HUF jointly exercises control over family assets among Hindu families. The Hindu concept of the Undivided Family has made it possible to base family business arrangements on Hindu personal law rather than on contractual agreements.
As a legal entity, the Hindu Undivided Family has always embodied two identities. One of these identities is that of a family-backed organization, and the other is that of an income-generating entity, specifically and solely to sustain the family. A deal like this is complex and confusing and unique, so lawmakers have to handle it uniquely under Indian tax laws.
According to the Income Tax website, a Hindu Undivided Family (HUF) is a family in which everyone is descended from a common ancestor. This includes their unmarried daughters and wives. A Hindu undivided family has its own Permanent Account Number (PAN). It files tax returns independently of its members.
In an undivided Hindu family, Karta is a very important member. The Karta usually the oldest male member of the family. Karta’s role is to manage the day-to-day affairs of the Hindu Undivided Family. Others in the family are called coparceners. The children of the family were all companions of their father’s Hindu Undivided Family.
Many literary texts and scholarly works justify the existence of the Hindu Undivided Families as an entity that protects the common nature and unity of Hindu families.
How do Hindu Undivided Families get tax benefits?
It was earlier the practice to provide additional exemption limit for Hindu Undivided Family when compared to other forms of tax payment. This results in Hindu Undivided Families paying less tax than other taxpayers. However, this regime was abolished in 1961 under the Income Tax Act.
In reality, however, the institution of the Hindu Undivided Family as a separate entity offered a way for Hindu families to reduce their tax burden in several ways.
Section 10(2) of the Income Tax Act, 1961 provides that any amount received by an individual as a HUF member from HUF income shall not be included in the total income. This means that in case a person receives a part of the income earned by HUF but does not have to pay any tax on that income. Furthermore, the Hindu Undivided Family has the right to claim exemptions, deductions and expenses. This also reduces the tax burden of a Hindu family.
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Source: pagasa.edu.vn