Recently, the Law Commission of India has started a fresh deliberation on the Uniform Civil Code. Public views on the issue have sparked a debate on HUF and its differential treatment under the country’s tax laws.
The undivided Hindu family
The British during the colonial period recognized the local customs and therefore the undivided Hindu family survived the colonial period and still continues to be a part of the Indian society. The undivided Hindu family is seen as an institution that worked on the essence of kinship and blood ties. The HUF jointly exercises control over family property among Hindu families. The concept of undivided Hindu family has made it possible for family business arrangements to be based on Hindu personal laws and not contractual agreements.
As a legal entity, the undivided Hindu family has always displayed a dual identity. One of these identities is that of a family-supported institution, and the other is that of an income-generating entity, specifically and solely for the maintenance of the family. A deal like this was complex to understand and unique, so lawmakers had to treat it uniquely under Indian tax laws.
According to the Income Tax website, Hindu Undivided Family (HUF) is a family in which all persons are linearly descended from a common ancestor. This includes their daughters and unmarried wives. An undivided Hindu family has its own permanent account number (PAN). File tax returns independently of members.
In an undivided Hindu family, the letter He is a very important member. He letter He is usually the oldest male member of the family. Karta’s role is to manage the day-to-day affairs of the undivided Hindu family. Other family members are known as companions. The children of the family are coparceners in their father’s undivided Hindu family.
Many literary texts and academic works justify the existence of undivided Hindu families as an entity that safeguards the joint essence and unity of Hindu families.
How do undivided Hindu families get beneficial tax treatment?
Earlier there was a practice of giving additional exemption limit to undivided Hindu family as compared to other forms of tax payment. This led to undivided Hindu families paying less taxes than other placed taxpayers. This regime, however, was abolished in 1961, through the Income Tax Law.
However, in effect, the institution of an undivided Hindu family as a distinct entity offers a way for Hindu families to reduce their tax burdens in multiple ways.
Section 10(2) of the Income Tax Act, 1961 provides that any amount received by an individual as a member of the HUF from the income of the HUF should not be included in the total income. This means that in case one receives a part of the income earned by the HUF and still does not have to pay any tax on it. Furthermore, the undivided Hindu family has the right to claim exemptions, deductions and expenses. This also reduces the tax burden of a Hindu family.
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