Father, Son Have Rights to Run Separate HUF and File Separate Tax Returns

In a report, it has been revealed that a father and a son have the legal rights to form and run separate Hindu Undivided Family (HUF) and file separate Income Tax Returns (ITRs). Expert views published on the Arthgyaan personal finance blog confirm that the Income Tax Act treats validly of each HUF as an independent taxable units formed in this way.

Membership Across Generations

A son can remain a member of his father's HUF while creating his own HUF. The system allows one person to be part of the HUF of his father, grandfather, and great-grandfather, while at the same time running his family unit. There is no restriction for this kind of arrangement in the law.

However, certain conditions must be met for this. To form a valid HUF under tax law, there must be at least two coparceners. This means if a son wishes to start his own HUF, he must have at least one child.

Under Hindu law, a husband and wife are considered a family. However, under income tax law, only coparceners are counted as a family. Therefore, a husband and wife alone cannot form a taxable HUF.
From the taxation perspective, an HUF is treated as a separate entity, seperate from its individual members. This provides each HUF its own financial identity.

Each HUF can apply for a Permanent Account Number (PAN); they can open their bank account and file their Income Tax Return (ITR).

This means that both the father's HUF and the son's HUF, if properly constituted, can file separate tax returns without interfering with each other's accounts. However, for approval, the HUF needs to have property or income. Ancestral property, donations given in the HUF's name, and revenue from HUF-owned assets fall under this category.

Without such property or income, the HUF will not be recognised as valid and will not be entitled to pay taxes.

Benefits for the Son

By being part of his father's HUF and running his own, the son gains two layers of advantage
He continues to enjoy privileges in his father's HUF, including a share in ancestral property and income. At the same time, his own HUF provides him financial independence, allowing him to manage property and income separately other than his paternal system.

This structure improves tax efficiency. Since both HUFs are recognised as different entities, income can be shared between them. Each HUF gets its own exemption limit and deductions, enabling them to decrease the overall tax burden.

What is a HUF?

Hindu law and tax law both acknowledge a Hindu Undivided Family (HUF) as a family structure. It is made up of individuals who are all related to a common male ancestor and can go back as far as four generations.

The members of an HUF are called coparceners. A coparcener is a person entitled by birth to a share in the family's ancestral property.

Disclaimer

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