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Tax: The Hindu Undivided Family

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Familial ties can  be strong in India. Joint families abound with members sharing the same kitchen as well as the income generating assets. The concept of Hindu Undivided Family (HUF) thus exists in India where a separate bank account and Permanent Account Number (PAN) can be generated for the HUF.

This can help save taxes. How?

Suppose you are working for an IT firms – say, TCS – and are already in the 30% tax bracket. You inherit land from your father which generates rental income. This income would be taxed at 30%. But if the income is shown under a HUF, then no taxes might have to be paid. Thus, you can save yourself and your family a lot of money.

But if that is so easy, why do not most people go for it?

A HUF is easy to form. But first, only Hindus, Sikhs, Buddhists and Jains can form a HUF. Secondly, a HUF cannot be created by a single person. Thirdly, there is the concept called “coparcener” in HUF. A coparcener is someone who has an equal right to a property as the other coparceners. All members of a HUF are coparceners. So, starting a HUF is a lot like opening Pandora’s box. Fourthly, although easy to open, a HUF is not easy to dissolve as all the coparceners must agree to the dissolution of a HUF. Fifthly, a HUF property can be sold or transferred only if all the coparceners agree. And lastly, every new-born child becomes a part of the HUF. Thus, although in the present, it might seem manageable, things might go out of your hand as the family grows making you spend the amount you save in taxes on a Chartered Accountant.

So, what do you think? Is a HUF worth all the trouble?

Share your thoughts in the comment section below.

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