1. Computation of Total Income of HUF

 

1. Income from the transfer of a self-acquired asset, without adequate consideration or conversion of the same into a joint family property, shall not be treated as the income of the HUF. It shall continue to be taxed under the transferor who is a member of the HUF.
2. Similarly, the income from an impartible estate is taxable under the holder of the estate and not in the hands of the HUF.
3. Any remuneration or fee received by a member of the HUF as a director or a partner of a company or firm as a result of an investment made in such concern from the funds of the HUF shall be treated as income of the same. However, if a member earns such an amount as a director or a partner for the services rendered purely in a personal capacity due to own aptitude to the business of the concern, it shall be treated as the income of the individual and not the HUF. It is stated that the remuneration and commissions received by the Karta of HUF on account of his qualifications and exertions and not on account of investments of the family funds in the company cannot be treated as an income of HUF.
4. If the remuneration is paid to a Karta of a HUF
   1. under a valid agreement which is a bonafide;
   2. is in the interest of, and expedient for, the business of the family; and
   3. the payment is genuine and not in excess, such remuneration paid entirely and exclusively for the business run by the family, shall be allowable as an expenditure while computing the income of the HUF and such a salary shall be taxable in the hands of the Karta as his income.
5. If the father does not have a son or a brother who are coparceners, the income arising from ancestral propertied is taxable as his income.

 

A Karta, in his individual capacity and representing a HUF, are two different entities. HUFs can sublet its contract to a Karta in his own capacity. Income earned by a Karta in his individual capacity from such an agreement cannot be assessed in the hands of the specific Hindu Undivided Family.

 

2. Computing Income of HUF

 

The following steps can be followed to calculate the total income tax of a Hindu Undivided Family.

 

Step 1: The Gross Total Income of a HUF, like any other individual, shall be computed under the four heads of income, with their residential status as the basis. There can be no income under ‘income from salaries’ in the case of a Hindu Undivided Family.

 

Step 2: Section 60 to 63 relating to the income of other individuals included in the assesse total income are applicable in the case of a HUF. However, Section 64 is not relevant to HUF as it is relevant in the case of individual assesse only.

 

Step 3: Set-off of losses is permissible while aggregating the income under different heads of income.

 

Step 4: Carry forward and set-off of losses of the past years, if allowed, is permissible.

 

Step 5: The remaining income after allowing the mentioned deductions is known as the Total Income which will be rounded-off to the nearest INR 10/-.

 

Step 6: Calculate the tax on such total income at the prescribed rates of tax.

 

Step 7: Allow the rebate under Section 88E.

 

Step 8: The balance is the total of the tax that is payable which will be raised by a surcharge on such income tax if applicable.

 

Step 9: Education Cess at 2% with additional Secondary and Higher Education Cess at 1% on the tax plus a surcharge if any shall be levied.

 

Step 10: Deduct the TDS, advance tax paid for the relevant assessment year, double taxation relief under Sections 90, 90A or 91 and double taxation relief under Sections 90, 90A and 91. The balance is the net tax that is payable which will be rounded-off to the nearest INR 10/- and must be paid as self-assessment tax before submitting the return of income.

 

3. Exemptions

 

In computing the income under ‘Capital Gains’, the HUF is also entitled to the following exemptions.

 

1. Section 54: Capital gain on sale of property used for residence.

2. Section 54B: Capital gains on transfer of agricultural land.

 

 

3. Section 54D: Capital gain on the compulsory acquisition of lands and buildings.

 

4. Section 54EC: Capital gain on transfer of long-term capital assets.

5. Section 54F: Capital gain on the transfer of certain capital assets where investment is made in a residential house.

 

6. Section 54G: Capital gain on transfer of assets on shifting of an industrial undertaking from an urban area.

 

7. As stated in Section 47 of the Income Tax Act, no capital gains shall arise to the Hindu Undivided Family (HUF) on the distribution of assets on the partition of Hindu Undivided Family (HUF).

 

4. Remuneration and Salary

 

Remuneration paid by a Hindu Undivided Family (HUF) to the Karta or any member of the HUF.

 

If any remuneration is given to the HUF to the Karta or any other member of the family for services rendered by the individual in conducting the family’s business, the remuneration is deductible if the payment is:

 

1. Paid under a bonafide and valid agreement;
2. In the interest of an expedient for the business of family; and
3. Reasonable and not excessive.

 

5. Remuneration and commission obtained by the Karta of a HUF

 

On account of his personal qualification/ exertions and not on account of investment of family funds in the company and therefore, could not be treated as an income of the HUF. It is also since the Tribunal is a final fact finding authority, the High Court was not right to hold the income that was to be treated as the HUF’s income.

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