H. DISADVANTAGES OF HUF
1. Additional paperwork
a) The HUF is a separate legal entity as well as a taxpayer.
b) You need to maintain books of accounts and all the paperwork that goes into the tax planning for
an individual.
2. Selling property is difficult
a) Property is an illiquid asset and it is difficult to get a buyer at the right price at the right time, and if it happens to be owned by an HUF, there are even fewer buyers.
b) An HUF property can have several claimants which makes the buyer wary, as he would like to buy a property with a clear title.
c) HUF property is usually sold at the time of partition, which becomes virtually impossible if there is a possibility of a legal dispute among co-parceners.
3. Family must be unified
a) It is crucial for the HUF to be unified, as even if one co-parcener demands a partition, the entire structure can collapse because the others will have to agree to it.
b) If there is a demand for partition, the karta will have to sign a declaration and submit it to the tax department informing it about the dissolution of the HUF.
4. Splitting some assets is not easy
a) If the HUF has only financial assets, gold and cash, it can be easily distributed among the co-parceners.
b) But if the assets include immovable properties or a running business, it is not very easy to split them.
c) Ancestral property may need to be sold to give a share to all co-parceners. d) If some co-parceners don’t want to sell ancestral property, they will have to arrange for funds to pay the co-parceners who have demanded the dissolution of the HUF, and arranging a huge sum at short notice may not be easy.
5. One-way street
a) Transfer of assets to HUF is a one-way street, as you can put assets in the HUF, but these can be taken out only by dissolving the HUF, with little control over it.
b) The karta can only distribute the income earned by the HUF, but not the assets without dissolving the unit.
I. SUITABILITY OF HUF
a) It suits taxpayers who also have income from ancestral property and expect to inherit financial assets, as they will be able to divert the inheritance to the HUF, thus preventing their personal tax liability from shooting up.
b) It is also useful for high-income taxpayers with a very high savings rate, whose Sec 80C limit is quickly exhausted, as they can distribute their investments to get more tax benefits through the additional deduction available to the HUF.
c) It is also suitable for tax payers who wish to avoid clubbing provisions of the income earned by other family members, by transferring suitable personal assets to the HUF.
J. TREATMENT OF HUF PROPERTIES
a) In a coparcenary property, every coparcener has a joint interest and joint possession.
b) A joint property cannot be disposed of, except out of legal necessity or for the benefit of the family.
c) While selling an immovable property, care should be taken to obtain the high court’s permission if there is a minor in the family, and the high court generally gives the go-ahead only if the minor’s interest is safeguarded.
d) Any coparcenary may, voluntarily, blend his separate property with the HUF’s property with the intention of abandoning a separate claim on it.
e) But, under tax laws, income arising from such transferred or gifted property to the HUF will continue to be included in the income of such a coparcener.
f) A Supreme Court ruling has held that a coparcener or a co-heir of ancestral property, governed by the Hindu Undivided Family (HUF), cannot gift joint family property unless he is the sole surviving legal heir.
1. Additional paperwork
a) The HUF is a separate legal entity as well as a taxpayer.
b) You need to maintain books of accounts and all the paperwork that goes into the tax planning for
an individual.
2. Selling property is difficult
a) Property is an illiquid asset and it is difficult to get a buyer at the right price at the right time, and if it happens to be owned by an HUF, there are even fewer buyers.
b) An HUF property can have several claimants which makes the buyer wary, as he would like to buy a property with a clear title.
c) HUF property is usually sold at the time of partition, which becomes virtually impossible if there is a possibility of a legal dispute among co-parceners.
3. Family must be unified
a) It is crucial for the HUF to be unified, as even if one co-parcener demands a partition, the entire structure can collapse because the others will have to agree to it.
b) If there is a demand for partition, the karta will have to sign a declaration and submit it to the tax department informing it about the dissolution of the HUF.
4. Splitting some assets is not easy
a) If the HUF has only financial assets, gold and cash, it can be easily distributed among the co-parceners.
b) But if the assets include immovable properties or a running business, it is not very easy to split them.
c) Ancestral property may need to be sold to give a share to all co-parceners. d) If some co-parceners don’t want to sell ancestral property, they will have to arrange for funds to pay the co-parceners who have demanded the dissolution of the HUF, and arranging a huge sum at short notice may not be easy.
5. One-way street
a) Transfer of assets to HUF is a one-way street, as you can put assets in the HUF, but these can be taken out only by dissolving the HUF, with little control over it.
b) The karta can only distribute the income earned by the HUF, but not the assets without dissolving the unit.
I. SUITABILITY OF HUF
a) It suits taxpayers who also have income from ancestral property and expect to inherit financial assets, as they will be able to divert the inheritance to the HUF, thus preventing their personal tax liability from shooting up.
b) It is also useful for high-income taxpayers with a very high savings rate, whose Sec 80C limit is quickly exhausted, as they can distribute their investments to get more tax benefits through the additional deduction available to the HUF.
c) It is also suitable for tax payers who wish to avoid clubbing provisions of the income earned by other family members, by transferring suitable personal assets to the HUF.
J. TREATMENT OF HUF PROPERTIES
a) In a coparcenary property, every coparcener has a joint interest and joint possession.
b) A joint property cannot be disposed of, except out of legal necessity or for the benefit of the family.
c) While selling an immovable property, care should be taken to obtain the high court’s permission if there is a minor in the family, and the high court generally gives the go-ahead only if the minor’s interest is safeguarded.
d) Any coparcenary may, voluntarily, blend his separate property with the HUF’s property with the intention of abandoning a separate claim on it.
e) But, under tax laws, income arising from such transferred or gifted property to the HUF will continue to be included in the income of such a coparcener.
f) A Supreme Court ruling has held that a coparcener or a co-heir of ancestral property, governed by the Hindu Undivided Family (HUF), cannot gift joint family property unless he is the sole surviving legal heir.