Properties that belong to Hindu Undivided Families (HUFs) are treated differently for legal and tax purposes

What is an HUF property?

A Hindu family can come together and form an entity called an HUF. Buddhists, Jains and Sikhs can also form an HUF. It is a taxable entity with a PAN, and can own assets such as property, business, gold and other funds, and have income and expenses.

Properties can be attached to an HUF through gift, ancestral sources or contributed to the common pool by its members who are part of the family.

Is there a way to separate the property so it is owned by individuals?

There are two kinds of people in an HUF. One is coparceners, who are lineal descendants of a common ancestor. Other is members, who join the HUF through marriage. Coparceners have the right to ask for partition of the property and get their share. Members cannot demand a partition, but would get their share in case of a partition.

The partition can be partial, wherein some members get their share in all the property owned by the HUF and leave. It can also be that some HUF properties are sold off and all members are given their share, and the HUF continues. There can also be total partition — all the members leave, the properties sold and the HUF is dissolved.

Can an individual claim higher share in an HUF property?

All assets belonging to an HUF would be presumed to be joint property and all the members have equal rights on the property. Not just those who were part of the HUF when the property was included, but any additions to the family — by birth or marriage — also get equal rights.

The only exception is self-acquired property by members. The onus is on the member to prove that the property was indeed self-acquired.

What are the tax implications on income and capital gains?

Rental income from a property is taxable to the HUF. If the property is partitioned, the income is taxed as individual income to the member.

For capital gains, partition is treated as a special case of transfer. Under Section 47(i) of the Income Tax Act, any distribution of capital assets on the total or partial partition of an HUF is not considered a transfer, for taxation.

Rules regarding exemption/deduction under Section54 on capital gains also differ slightly for HUF properties. An HUF can invest the capital gain from the sale of a property for purchase of one or more properties. The condition is that the new properties must be purchased in the name of the same HUF.

What should one watch out for when buying an HUF property?

If you plan to buy an HUF property, there are a few additional checks you must make. One, make sure there are no potential legal issues. For instance, when the sale happens due to dissolution of an HUF, there may be disputes between relatives.

Two, the property can be sold by the karta , who is the manager of the HUF with powers to control the affairs. But you need the consent of all the members. It is likely that some members were not consulted or were not convinced that the sale is for the benefit of the HUF. So you must get a No Objection Certificate (NOC) from all the members.

Three, minors also have rights; you must get a consent from the guardian for the sale.

What rights do women have in an HUF property?

The rights of a daughter — married or not — is identical to that of a son in her father’s HUF. She is a coparcener and can also add her individual property into the HUF. However, in her husband’s HUF, she can only be a member. Widows have absolute rights on their husband’s share in the HUF property, and it continues to exist even in case of remarriage.

How does property succession happen?

An HUF property continues to be held by its members even with the death of the karta or any coparcener.

The right of ownership is passed on to the legal heirs. For example, if a daughter is no more, her children get the rights. If there are no children who are alive, it is passed to her grandchildren.

A coparcener can bequeath his/her interest in the property through a will, but the interest cannot be gifted. Any gift to non-family members, even by the karta , is not allowed.

The writer is co-founder,RaNa Investment Advisors.