Income tax implications in case of partition of an HUF

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Question: I have an HUF consisting of me, my wife, an unmarried son. My daughter got married in 2010. I wish to distribute some of the assets amongst the three members. Can I do it and what are the tax implications for assets received in the hands of the members?

Answer: After amendment of the Hindu Succession Act in 2005, a daughter whether married or unmarried is treated on par with a son and therefore she is also a coparcener. Since a daughter is a coparcener, she is therefore entitled to equal share in the HUF property as and when it is partitioned/distributed. So on partition of an HUF daughter and sons will get equal share in the assets of the HUF. The mother and the father will also get an equal share that of the son and daughter. Let me point out that she can renounce her share in favour of other members.

Before amendment of Section 171 of the Income Tax Act in 1978, an HUF could be partitioned in partly with respect to some of its members and also with respect to some of its assets. However, after this amendment, a partial partition is not recognised by the income tax laws. So the partition of an HUF is valid only if it is a full partition with respect to all the assets and with respect to all the members. In order to make the partition fully effective for the purpose of income tax, you have to obtain an order from your assessing officer recognising such total partition for which you have to make an application to the assessing officer. The assets received by the members on the full partition of the HUF are fully tax-free in the hands of the members as the same is not treated as transfer under the tax laws.

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Since you are planning to distribute only some of your assets, this will not be recognised under the tax laws and income from the distributed assets shall continue to be taxed in the hands of the HUF even though such income may actually be received by the member concerned.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter

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