With talks about the Union government introducing a Uniform Civil Code (UCC) in the upcoming Parliament session doing the rounds, the potential implications it can have on the tax-saving entity of the Hindu Undivided Family (HUF) are also being discussed. TNM spoke to legal experts on the subject to explain the concept of the HUF and its potential abolition with the implementation of a UCC.
The HUF is a family consisting of persons lineally descended from a common ancestor, which cannot be created under a contract but is created automatically in a Hindu Family. For the purposes of the Income Tax Act, of 1961, the HUF is treated as a ‘person’ under section 2(31). It is a separate entity for the purpose of assessment under the Act. Derived from the Hindu joint family system, it was made a taxable legal entity by the British during colonial times. The income of Jain and Sikh families can also be treated as HUF under the I-T Act.
Legal experts say that a progressive UCC will do away with coparcenership and the joint family system. Coparcenership is when a person inherits a legal right to their ancestral property at/by birth. The Law Commission’s 2018 consultation paper on the Reform of Family Law states, “As soon as coparcenary is abolished, the institution of HUF would inevitably collapse.”
Sarasu Thomas, professor of family law at National Law School of India University, Bengaluru, explains that HUF comes into existence because there is joint family property. “Joint family property comes from a concept called survivorship, that is, when a person is born, they have an automatic claim to the property, which is a right peculiar to Hindu personal law,” Sarasu says.
She further states, “HUF is based upon the idea of coparcenership. The coparcenary system and right-by-birth system is based on Hindu personal law. Once that goes, the entity called HUF does not have relevance. Though the I-T Act speaks about the HUF, it really has nothing to do with how the HUF is created. When there is no Hindu personal law that recognises the joint family system, how can it come into being?”
“If there is a UCC, there can only be one law. Unless of course exceptions are carved out, in which case there is effectively no UCC,” she says.
Advocate Swaroop Mamidipudi expresses a differing opinion. He says that the implementation of the UCC does not necessarily mean the abolition of the HUF, as it is a separate business entity established for the purposes of taxation. “The UCC deals with subjects like marriage, succession, inheritance, divorce, and adoption, and not taxation," he says, adding that abolishing the HUF will require another amendment to the I-T Act. According to Swaroop, “HUF is not a component of personal laws at all. The HUF was established as a legitimate business entity as part of the I-T Act enacted in 1922. While the joint family system may be abolished, it will not have an impact on how income is taxed under the HUF.”
Swaroop also adds that if HUFs are abolished, the property can either be taxed as an association of persons, or as individual property. He believes that given how the Hindu population of north India forms a major share of the ruling BJP’s vote bank, the abolition of the HUF may not be carried out.
Sarasu cites the example of Kerala, which passed the Kerala Hindu Joint Family (Abolition) Act in 1975 when asked what happens to the existing HUFs upon the implementation of the UCC. “When Kerala did away with the joint family system, whoever held the joint family property got separate shares. So going by this past practice, then that is what will also happen here. All those who are members of the HUF at the time of the abolition will become separate owners of the divided property. Children born after the partition of the property will not have a claim to the property by virtue of birth. But since we do not know the content of UCC at present, we cannot say how it will pan out. Everyone is currently vague about what the content of the UCC will be,” she explains.
However, Sarasu adds that doing away with the HUF is not going to be practically possible given the large number of HUFs. “It's not just to do with businesses, it also affects things like how ancestral agricultural land is held, how families organise agriculture and other activities as well. The 2018 Law Commission report also said that there must be reforms in each personal law. I think women’s voices must also be heard, I think the reforms must be bringing in gender equality in each law. While it is good if we bring about better equality for women, it can only be done piecemeal. Having a provision that does away with the HUF, I do not see it practically happening in such a wide manner,” she says.