Page 41 - Banking Finance August 2023

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Uniform Civil Code and Hindu Undivided

Family: Why it must preserve tax benefits

he 22nd Law Commission of India has solicited funds. The condition is also satisfied if the “joint family”
T views from all stakeholders on the Uniform Civil property is sold, or is contributed to the “common pool” by

Code (UCC), seeking to achieve goals that are in
any member.
line with Article 44 of the Constitution. However,
the aspirational objectives of “equal status to all citizens”, Uniform Civil Code: No bad time for a
“promoting gender parity”, “national integration” and
good law
“reforming existing personal laws” should not jeopardise
existing benefits to citizens. The tax benefits granted to the The current tax framework ensures a distinct and separate
Hindu Undivided Family (HUF) under the present tax regime existence of the HUF from the members who constitute it.
is one such crucial perk that faces the sword of Damocles In addition, HUF is also granted tax-avoidance facilities on
with UCC’s “uniformity endeavour”. “family income”, higher exemptions and lower tax rates as
compared to the other category of “persons” in the Act.
For generations, India has had a “joint family system” where
the patriarch or the head of the family remains the HUF is treated as a “person” for tax assessment under
unquestioned authority. The aim is “general family welfare” section 2(31) of the Act, separate from the individual
or promotion of the family as a unit — for which individual members of the family, with its own PAN card and bank
interests of family members can be sacrificed. HUF account. As a result, the entity enjoys tax benefits distinct
represents this “joint family system”, which was legally from those availed by the individual family members, which
recognised in the 19th century and received the status of a is a legitimate way of reducing one’s tax burden. The income
distinct “tax entity” in the Income Tax Act of 1922. Its of HUF is taxed separately as per the rates applicable to
incorporation as a separate tax unit was intended to govern individuals. Furthermore, HUF enjoys the exemptions and
a family that stays together under a common roof, sharing deductions available to individuals such as those provided
food and place of worship, and running a family business — under section 80C of the Act (Rs 1.5 lakh); 80D of the Act
with different family members — as a single unit. (Rs 25,000 — and for senior citizens Rs 50,000); 80DD (up
to 1.25 lakh rupees); 80DDB (Rs 40,000 — and for senior
HUF can exclusively encompass all the persons, descendants
of a common ancestor including their wives and “unmarried
daughters”, with the head of the family being Karta
(typically eldest coparcener), who is responsible for the
family’s financial and legal affairs. Although not defined in
the Income Tax Act, 1961, HUF is treated as a “person”
under section 2(31) of the Act, for the purpose of “tax
assessment”. HUF’s income may be assessed for income tax
if the following two conditions are satisfied — (i) there is a
coparcener; (ii), a “joint family property” is available to the
family – whether as a business or gift, in a will, as ancestral
property, or if it’s a property acquired from the “joint family”

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