How does the ownership and succession of HUF assets work?

HUF and HUF assets are two different concepts, as it is not necessary for an HUF to own assets. An HUF may exist because there are two or more living coparceners, but it may not own any assets.

This is because Hindus get joint family status by birth, and joint property is simply an adjunct to the joint family. Let us discuss various aspects related to owning and succession of assets with special reference to HUF. 

How can an HUF acquire its assets?

Karta of an HUF can receive gifts on behalf of the HUF from non-family members, provided the donor gives specific direction that the gift is made for the benefit of the HUF.

An HUF can also acquire assets under a ‘Will’ through a specific bequest in favour of the HUF by the deceased. Even members of the HUF can also throw their personal property into the common pot of the HUF, but any income arising from such transferred assets shall be clubbed with the income of the donor till the assets of the HUF are distributed.

Even after the distribution of such HUF property, the share of the HUF property allotted to the spouse of the transferor will still continue to be clubbed with the income of the transferor spouse. 

Since members of the HUF are treated as relatives of the HUF, the gifts received from the members are not treated as income of the HUF under Section 56(2) at the time of receipt of the gift, and thus, the HUF can receive gifts of any value from its members.

Please note that the gifts received from non-members shall become fully taxable in the hands of the HUF if the aggregate of all the gifts received by the HUF during the years exceeds ₹50,000.

As long as the aggregate value of all the gifts received from non-members during the year does not exceed ₹50,000, the same is not to be treated as income of the HUF. In case of gifts through cheque or movable assets, no registration is required to be done, but gifts of immovable property need to be registered, and adequate stamp duty is also required to be paid. 

Succession and transfer of HUF property

The coparceners of the HUF cannot gift or transfer their rights in the assets of the HUF during their lifetime, but are entitled to bequeath their share in the HUF assets through a ‘Will’.

Prior to the amendment of the Hindu Succession Act in 2005, the property of HUF used to devolve on the surviving coparceners of the HUF by survivorship, but the situation has changed post the amendment.

In case no ‘Will’ is made by the coparcener, the share of the deceased coparcener in the HUF property passes on to the legal heirs as mentioned in class 1 of the first Schedule of the Hindu Succession Act, 1956. The assets acquired by such successors become their absolute property, which they are entitled to dispose of in the way they want. 

Partition of the assets of the HUF property

Since all the coparceners have rights in the assets of the HUF, the Karta cannot dispossess any coparcener of his rights in the HUF assets. In case any coparcener demands partition of the assets of the HUF, the karta has to give their share of the HUF assets to such coparcener.

Though, as per the Hindu Law, partial partition of the HUF, either as regards the assets or as regards members, is fully valid, but the income tax laws do not recognise such partial partition.

The income tax laws require that the partition of HUF should be full as regards all the assets as well as in respect of all the members. So, unless there is a full partition of the HUF, the income arising in respect of the partly distributed assets shall continue to be taxed in the hands of the HUF.

The assets received by the coparceners on partition are his/her personal assets. The partition of the HUF needs to be taken on record by the income tax department and an order needs to be obtained recording such full partition.

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