There is developing demand for implementation of Uniform Civil Code (UCC) in India. In addition to other implications, it will also effect the idea of Hindu Undivided Family (HUF) as an earnings tax unit. I believed of writing about its implications as and when the UCC is implemented.
The historical purpose for introduction of HUF as tax units
Long back when urbanisation had not gripped the nation, a single family with several generations used to keep with each other sharing frequent roof, meals and spot of worship. This represented a joint family which also had joint house relationship amongst its members. The family, in most of the situations, owned firms, run by several members of the family, as a single unit. The idea of HUF is derived from it.
Income of the HUF was meant to be offered for upkeep and other purposes of the family members. The HUF as a tax unit is not of current origin. This was currently there in the Income Tax Act, 1922, the predecessor of the present Income Tax Act of 1961, below which also it has been continued. Under the present tax laws, an HUF enjoys its existence, distinct and separate, from the members who constitute it. Being a separate tax unit, it enjoys a separate tax exemption limit in addition to the several tax breaks below Sections like 80 C, 80 D, 80 DDB, 112A and so on.
What really should you do now?
It is not that the UCC will turn out to be law overnight. In order to make laws in India, a quite lengthy procedure is followed. First of all, the Law Commission sends a draft of the bill for the proposed legislation with is recommendation to the Ministry of Law & Justice. The ministry in turn weighs the proposals and take its selection. In case the ministry accepts the ideas of the Law Commission, it areas the proposed legislation prior to the Parliament. The bill is discussed in each the homes of Parliament and if require is felt, it can even be referred to a pick committee for additional discussion. After each the homes pass the bill with requisite majority, it is sent to the President for his assent. And it is only right after the bill is assented to by the President that it becomes law of the nation. So, there is a reasonably lengthy journey ahead. So, I really feel we require not do something as of now.
Impact of final implementation of Common Civil Code
If the UCC is eventually implemented, the idea of HUF will have to be provided a go-by. This may possibly require an amendment in the Income Tax Act if no distinct provisions in the UCC on the related line as contained in the “Kerala Joint Hindu Family System (Abolition) Act, 1975” is made. The above piece of legislation offered that all the institutions of HUF will not be recognised in the state of Kerala right after the law is enacted. It also offered that when the law comes into impact, no Hindu will be entitled to claim any interest in ancestral house due to his birth in the family.
So, not only the provisions about the rights of persons taking birth right after coming into force of UCC but also provisions about the current joint family will have to be made either below the UCC or below the Income Tax Laws. The law may possibly provide that all the assets of erstwhile HUF shall be deemed to have been divided and distributed amongst all the members who are entitled to get a share in the assets of the HUF. The properties can not be divided in pieces, a deemed partition would be assumed and all the members shall hold the immovable house as tenant in frequent and a member will turn out to be a complete-fledged owner for his share of the joint family house.
I presume the law as and when implemented will provide on the related lines below the tax laws. So the share of earnings arising to members of the HUF in respect of their share in the HUF asset/properties not divided physically will be integrated in the earnings of the respective members.
The above discussion tends to make it amply clear that the tax payers who have been assessed as HUF require not be concerned now and really should do absolutely nothing and wait for the law to come into impact.
(The author is a tax and investment professional, and can be reached at [email protected])