A Hindu Undivided Family (HUF) and the assets it may own are two separate concepts. An HUF comes into existence automatically when there are two or more coparceners (family members entitled to inherit), but it’s not necessary for the HUF to own any property or assets. In essence, joint family status under Hindu law arises by birth, and shared property is only an extension of this concept.
How an HUF Can Acquire Assets
The Karta (head) of an HUF can accept gifts meant specifically for the HUF from non-family members. However, the donor must clearly state that the gift is intended for the benefit of the HUF.
Additionally, an HUF can inherit assets if someone bequeaths property to it via a Will. HUF members can also voluntarily contribute their personal property to the family pool. However, any income generated from such contributions will continue to be taxed under the original owner’s income until the HUF property is formally divided.
Interestingly, even after the division of HUF assets, if the spouse of the original donor receives a share, the income generated from that portion will still be clubbed with the income of the donor spouse for tax purposes.
Because HUF members are considered relatives, gifts exchanged among them are exempt from taxation under Section 56(2) of the Income Tax Act. Therefore, an HUF can receive gifts of any amount from its members without tax liability.
In contrast, gifts received from non-members are subject to taxation if their total value exceeds ₹50,000 in a financial year. Gifts below this threshold are tax-exempt. While no registration is required for movable gifts (like cash or cheques), immovable property must be properly registered, and applicable stamp duty must be paid.
Succession of HUF Property
Coparceners do not have the right to gift or transfer their interest in HUF assets during their lifetime. However, they are allowed to allocate their share through a Will.
Before the 2005 amendment to the Hindu Succession Act, HUF property passed on automatically to surviving coparceners under the rule of survivorship. Post-amendment, the deceased coparcener’s share is now inherited by legal heirs as per Class I of the first schedule of the Act if no Will exists.
Once inherited, such property becomes the absolute possession of the legal heir, who can deal with it as they wish.
Partition of HUF Assets
Every coparcener has an equal right in the HUF property, and the Karta cannot deny this. If any coparcener seeks a division, the Karta is obligated to hand over their rightful share.
While Hindu Law permits partial partition (either of specific assets or among selected members), the Income Tax Act only recognises a full partition. This means the division must cover all assets and involve all members to be valid for tax purposes. Until then, income from the partially divided property continues to be taxed under the HUF’s name.
After the partition, the distributed assets become the personal property of the respective recipients. The partition must be reported to the Income Tax Department, and an official order confirming the full partition should be obtained.
Disclaimer: This article is intended solely for educational purposes. The opinions expressed are those of individual financial experts or brokerage firms and do not reflect the views of Mint. Always consult certified professionals before making financial decisions.
