Why can the Uniform Civil Code impact the tax benefits of Hindu Undivided Family?

Recently, the law commission of India has initiated a new deliberation on the Uniform Civil Code. the public views on the issue have brought forward debate over HUF and its distinct treatment under the country's tax laws.

The Hindu Undivided Family

The British during the colonial period acknowledged the local customs and thus the Hindu Undivided Family survived the colonial period and still continues to be a part of Indian society.  The Hindu Undivided Family is seen as an institution that worked on the essence of kinship and blood ties. The HUF jointly exercises control over familial property among Hindu families. The concept of the Hindu Undivided Family has made it possible for family business arrangements to be based on Hindu personal laws and not on contractual agreements.

As a legal entity, the Hindu Undivided Family has always displayed a dual identity. One of these identities is that of a family-backed institution, and the other is that of an income-generating entity, specifically and solely for the maintenance of the family. An arrangement like this was complex to understand and unique, and thus the lawmakers had to treat it in a unique manner under the Indian tax laws.

According to the website of the Income Tax, the Hindu Undivided Family (HUF) is a family having all persons lineally descended from a common ancestor. This includes their unmarried daughters and wives. A Hindu Undivided Family has its very own Permanent Account Number (PAN). It files tax returns independent of the members.

In a Hindu Undivided Family, the Karta is a very important member. The Karta is usually the eldest male family member. The role of the Karta is to manage the everyday affairs of the Hindu Undivided Family. Others in the family are known as the coparceners. The children of the family are coparceners of their father's Hindu Undivided Family.

Many literature texts and scholarly works justify the existence of Hindu Undivided Families as an entity that safeguards the joint essence and unity of Hindu families.

How do Hindu Undivided Families get beneficial tax treatment?

Earlier there was a practice of grating an added exemption limit to the Hindu Undivided Family when compared with other taxpaying forms. This led to Hindu Undivided Families paying lesser taxes than other placed taxpayers. This regime, however, was done away with in the year 1961, under the Income Tax Act.

Yet, in effect, the institution of a Hindu Undivided Family as a distinct entity offers a way for Hindu families to decrease their tax burdens in multiple ways.

Section 10(2) of the Income Tax Act, 1961 states that any amount received by an individual as a HUF member out of the HUF income is not to be included in the total income. This means that in case one receives a share out of the income earned by the HUF, and yet not require to pay any tax on the same. Moreover, the Hindu Undivided Family has the right to claim exemptions, deductions, and expenses. This additionally reduces the tax burdens of a Hindu family.

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