1. Important Points towards Assessment of HUF
(1) HUF is a separate and a distinct tax entity. The income of a HUF can be assessed in the hands of the HUF alone and not in the hands of any of its members, unless specifically provided by law.
(2) However, any sum received by an individual as a member of a HUF. where such sum has been paid out of the family or income of the impartible estate belonging to the family shall be exempt in the hands of the member of the HUF as per Section 10(2).
(3) The liability of income-tax in case of HUF also depends upon its residential status in India. HUF can be
(a) resident and ordinarily resident in India;
(b) Resident but not ordinarily a resident of India; or
(c) Non-resident in India.
(4) HUF cannot make any gift of HUF property to any coparcener or any other person. Any gifts made by HUF are void-ab-initio.
(5) However, the karta of a HUF has power to gift out of joint family property for certain approved purposes provided that gift amount is reasonable.
(6) Coparceners are only allowed to claim partition of HUF.
However if any partition takes place in HUF, there should be complete partition of HUF. Partial partition of HUF is not recognized by Income Tax and Wealth Tax Act.
(7) On partition of HUF, the mother i.e. wife of karta takes a share equal to the sons and daughter. However, they can mutually decide to take unequal shares.
(8) As per section 47 of Income Tax Act, no capital gain shall arise to HUF on distribution of assets on partition of HUF.
(9) As per section 64(2), income from the transfer of a self-acquired asset, without adequate consideration or conversion of the same into joint family property, shall not be treated as the income of the HUF. It shall continued to be taxed in the hands of the transferor who is the member of the HUF.
(10) Similarly, income from an impartible estate is taxable in the hands of the holder of the estate and not in the hands of the HUF.
(11) Any fee or remuneration received by a member of the HUF as a director or a partner in a company or firm which is as a result of the investment made in such concern out of the funds of the HUF, shall be treated as income of the HUF.
However, if such fee or remuneration is earned by the member as a director or partner for services rendered purely in his personal capacity because of his personal aptitude to the business of the concern, it shall be treated as the income of the individual and not the HUF.
(12) If remuneration is paid to the Karta of a HUF or any other member of HUF:
(a) under a valid agreement which is bona fide
(b) is in the interest of, and expedient for, the business of the family, and
(c) the payment is genuine and not excessive,—
such remuneration paid wholly and exclusively for the business of the family, shall be
allowable as an expenditure while computing the income of the HUF and such salary shall be taxable in the hands of Karta / Member as his individual income.
(13) As already discussed above, the son is not a coparcener in Dayabhaga School of law. Therefore, if the father does not have a brother as a coparcener, income arising from ancestral property is taxable as his individual income.
2. Steps for Computation of Income-Tax of HUF
Step 1 :
The Gross Total Income of HUF, like any other person, shall be computed under four heads of income, on the basis of their residential status. There can be no income under the head income from salaries in the case of HUF.
Sections 60 to 63 relating to income of other person included in the assessee's total income are applicable in case of HUF but section 64 is not applicable to HUF as it is applicable in case of individual assessee only.
Set off of losses is permissible while aggregating the income under different heads of income.
Carry forward and set off of losses of past years, if permissible, is allowed.
The income computed in steps 1 to 4 is known as gross total income from which the deductions under sections 80C to 80U will be allowed.
The balance income after allowing the deductions is known as Total income which will be rounded off to the nearest Rs. 10 .
Compute the tax on such total income at the prescribed rates of tax i.e. at special rates and normal slab rates.
Add surcharge wherever applicable.
Health and Education Cess @ 4% on the tax plus Surcharge if any, shall be levied.
Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded off to nearest Rs. 10 and must be paid as self-assessment tax before submitting the return of income.
3. Partition of HUF
A LIUF can be partitioned both as regards to persons and as regards to property. This partition can be of two types:
(a) Total or complete partition:
(b) Partial partition.
Total / Complete Partition:
Where all the properties of the family are divided amongst all the constituents of the family, and the family ceases to exist as an undivided family, it is known as a total or complete partition.
On the other hand, if some of the constituents of the HUF go out of the fold, others remaining joint, or some of the properties are divided and balance remain joint, it is known as partial partition.
Partial partitions after 31.12.1978 are not recognised for tax purposes.
Persons entitled to Claim Partition:
Partition can only be claimed by a coparcener. But, when there is a partition of HUF the following persons are entitled to a share in the assets of the HUF:
(i) All coparceners.
(ii) Mother is entitled to a share equal to the share of a son in case of death of the father.
(iii) Wife gets a share equal to that of a son if a partition takes place between her husband and his sons. She enjoys this share separately even from her husband.
(iv) A son in the womb of the mother at the time of the partition.
4. Tax on Income of HUF [Section 115BAC(1)] – w.e.f. A.Y. 2021-22
The Income Tax payable in respect of the total income of a HUF, for any previous year relevant to assessment year beginning on or after 1.4.2021, shall be computed at the Rate of Tax given in the following Table.
Rate of Tax
₹2,50,001 to ₹5,00,000
₹5,00,001 to ₹7,50,000
₹7,50,001 to ₹10,00,000
₹10,00,001 to ₹12,50,000
₹12,50,001 to ₹15,00,000