ICAI has released the publication titled ‘Technical Guide on Taxation of HUFs’, which covers laws and procedures relating to taxation of HUFs at length and is very useful to elaborate on the matter of taxation of HUFs for guidance of the members.
As per the Income-tax Act, 1961, a Hindu Undivided family (HUF) is considered as separate legal entity and assessed to Income-tax as a distinct ‘person’. Also for HUF, there are separate provisions on computation of tax, clubbing of income of a HUF in the hands of a members, etc. under the Income-tax Act, 1961.
In legal parlance, a Hindu Undivided Family (HUF) is a joint family consisting of lineal descendant members from a common ancestor. It is considered as a separate tax entity that is automatically constituted whenever a marriage takes place. The senior-most male member of the family is ordinary regarded as the Karta of the HUF. The Income of a HUF is subjected to tax separately (not in the hands of members) and HUF is required to obtain a separate Permanent Account Number (PAN). It can earn income from all sources, except salary. Rental income can also be earned on ancestral or other property held by a HUF.
Businesses in India are largely family oriented which has both positive and negative aspects. Taxation of HUF being peculiar to this Country draws a lot of interest amongst tax payers. The prevailing social environment is leading to the melting of large HUFs and a movement towards nuclear families resulting in a need for arranging the affairs especially in family-owned businesses. India is known for its big happy families; we epitomize the large family structure.
ICAI’s Technical Guide on Taxation of HUFs (First Edition: August 2021)