Hectic parleys in the corridors of power have set the ball rolling on the Uniform Civil Code (UCC). The basic mandate of the UCC is to subsume all personal laws under one giant umbrella and establish one Civil Code.
The task of drafting a Civil Code that could uniformly apply to all citizens is a herculean task, to say the least, especially for a country, as diverse as India. However, there is a setup that may look like an antithesis to the spirit of a Uniform Civil Code — the Hindu Undivided Family and the tax benefits associated with it.
What Is HUF?
As per the Income Tax Department, HUF
> Is treated as a person
> Is a separate entity for the purpose of assessment
> Is a family comprising all persons lineally descended from a common ancestor under Hindu law. Wives & unmarried daughters are included as well.
> Cannot be created under a contract
> Created automatically in a Hindu family
> Law applies to Jains & Sikh families as well
> Only property inherited by a Man from any of his 3 immediate male ancestors treated as ancestral property
> Typically, the senior-most male member is the Karta, or the manager of the HUF
P.S. The day a Hindu bride & groom get married, they have formed a HUF. However, one needs to create a HUF deed and eventually open a HUF account for tax-related benefits.
Legal Origin Of The HUF
The Indian Income Tax Act, 1922 established the concept of a HUF as a separate assessable entity.
"Where any (Central Act) enacts that income-tax shall be charged for any year at any rate or rates -- tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of (the total income) of the previous year of every (individual, Hindu undivided family,) company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually."
The Companies Act also recognises HUF as a legal entity.
The Rationale?
A 2018 Law Commission consultation paper said:
"According to the colonial interpretation, HUF was a joint family that was held together by strong ties of kinship and entailed a variety of joint property relations among the members. Hence, a legal status was given to the HUF as a trading entity."
A Modern-Day Necessity or Relic Of The Past?
In 2018, the Law Commission had said that the HUF
> Was neither congruent with corporate governance, nor conducive for the tax regime
> In 1936, the Income Tax Enquiry Report had warned of substantive revenue loss if HUF is granted special exemptions.
The Law Commission had highlighted, ‘When it has been seventy-two years since independence, it is high time that it is understood that justifying this institution on the ground of deep-rooted sentiments at the cost of the country’s revenues may not be judicious.’
Are HUFs Treated Differently Under Income Tax Laws?
HUF being a separate legal entity is treated separately from the members who constitute it. The basic exemption limit and tax slabs remains the same as an individual.
Tax Slabs under the New Income Tax Regime (AY 2024-2025)
| Income Bracket | Rate |
| Upto Rs 3 lakh | Nil |
| Rs 3 lakh - 6 lakh | 5% |
| Rs 6 lakh – 9 lakh | 10% (+ Rs 15,000) |
| Rs 9 lakh – 12 lakh | 15% (+ Rs 45,000) |
| Rs 12 lakh – 15 lakh | 20% (+ Rs 90,000) |
| Above Rs 15 lakh | 30% (+ Rs 1.50 lk) |
*Additional surcharges levied on income above Rs 50 lakh. Highest surcharge of 25 percent applicable on income over Rs 5 crore
What Benefits Do HUFs Get That Individual Taxpayers Don’t?
> Can divert rental income from ancestral property to HUF and reduce own taxable income
> HUFs can pay annual salaries to members and show it as expense
> No tax implications if HUF members transfer gift to the HUF
> The law clearly states that income from self-acquired property is not taxable in hands of the family. The rule however is often misused
Income Tax Act states ‘If a member has converted or transferred without adequate consideration his self-acquired property into join family property, income from such property is not taxable in hands of the family.’
How Many HUFs In India?
As per CBDT data, over 12.14 lakh HUF filed returns in FY2018-2019.
| Financial Year | Tax Returns Filed |
| FY18 | 12,88,544 |
| FY17 | 11,63,543 |
| FY16 | 10,42,522 |
| FY15 | 9,66,500 |
In Assessment Year 2018-2019, HUF’s contribution to India’s total taxpayer population stood at 1.4 percent.
| Assessment Year | HUF Share In Taxpayer Population |
| 2018-2019 | 1.4% |
| 2017-2018 | 1.5% |
| 2016-2017 | 1.6% |
| 2015-2016 | 1.7% |
Does The Existence Of A HUF Go Against The Spirit Of The UCC?
> Members of the Muslim, Parsee, Jewish or Christian community cannot form a HUF
> One important norm within the HUF is gender-discriminatory itself. Only a male member of a family can become the Karta. The 2016 landmark verdict of the Delhi High Court ruling extending the status to Hindu women is yet to be formalised
> No such tax-saving tool available to citizens who are not Hindu, Sikh or Jain
> Less than 2 percent of India’s income tax payers are HUFs
> Loopholes in the HUF setup can be misused for tax evasion
> A colonial interpretation by the British, which may look outdated in 2023
(Edited by : Pradeep John)
First Published: Jul 7, 2023 8:54 PM IST
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