Hindu Undivided Family – a Tax Saving Tool
Hindu Undivided Family – A Tax Saving Tool
G. Venkatesh
Introduction
Amid all the wide diversity there is a philosophy of underlying unity in India. Yet, at the dawn of freedom, the founding fathers of our nation chose to continue separate personal laws for its citizens based on their religious identities. This was despite the fact that the new constitution embraced secularism. While Hindus continue to be governed by the Hindu laws, Muslims follow the Mohammedan laws and so on. Personal laws are set of laws relating to marriage, divorce, guardianship, adoption, maintenance, succession to estate and such other family related matters.
This paper attempts to understand the unique tax saving opportunity available for Hindus in the form of Hindu Undivided Family (HUF) concept. Firstly, let us analyze how HUF is a tax saving tool. Next we will understand certain anti-abuse provisions relating to HUF in the tax laws due to which certain aspects of HUF vary significantly from the principles under civil laws. Finally we will identify the actual avenues of tax saving available currently given that most of the ‘loop holes’ in the tax laws have been plugged. All references, in this paper, to tax laws are to be read as Income Tax Act, 1961 and the rules thereof. While under the civil laws, the term Joint Hindu Family (JHF) is frequently used, the tax laws use the term Hindu Undivided Family (HUF). In this paper, HUF and JHF are interchangeably used.
Hindu Law: Joint Hindu Family and Coparcenery
To begin with, without going into too many details, a quick recapitulation of principles and provisions of joint family and coparcenery in the Hindu law would be appropriate. A joint Hindu family (JHF) consists of all persons who are lineally descended from a common Hindu ancestor and includes their wives and unmarried daughters. No stranger can be admitted into it except by way of marriage or adoption. A JHF consists of not only male members but also female members. However, a
G. Venkatesh
Introduction
Amid all the wide diversity there is a philosophy of underlying unity in India. Yet, at the dawn of freedom, the founding fathers of our nation chose to continue separate personal laws for its citizens based on their religious identities. This was despite the fact that the new constitution embraced secularism. While Hindus continue to be governed by the Hindu laws, Muslims follow the Mohammedan laws and so on. Personal laws are set of laws relating to marriage, divorce, guardianship, adoption, maintenance, succession to estate and such other family related matters.
This paper attempts to understand the unique tax saving opportunity available for Hindus in the form of Hindu Undivided Family (HUF) concept. Firstly, let us analyze how HUF is a tax saving tool. Next we will understand certain anti-abuse provisions relating to HUF in the tax laws due to which certain aspects of HUF vary significantly from the principles under civil laws. Finally we will identify the actual avenues of tax saving available currently given that most of the ‘loop holes’ in the tax laws have been plugged. All references, in this paper, to tax laws are to be read as Income Tax Act, 1961 and the rules thereof. While under the civil laws, the term Joint Hindu Family (JHF) is frequently used, the tax laws use the term Hindu Undivided Family (HUF). In this paper, HUF and JHF are interchangeably used.
Hindu Law: Joint Hindu Family and Coparcenery
To begin with, without going into too many details, a quick recapitulation of principles and provisions of joint family and coparcenery in the Hindu law would be appropriate. A joint Hindu family (JHF) consists of all persons who are lineally descended from a common Hindu ancestor and includes their wives and unmarried daughters. No stranger can be admitted into it except by way of marriage or adoption. A JHF consists of not only male members but also female members. However, a