How to Cease the Existence of HUF in Eyes of the I-T Department?

Process of HUF Closing with the Income Tax Department

As per Income Tax Laws, Hindu Undivided Family is a separate assessee and its returns are filed separately. A few years back, registering as HUF (if feasible legally) and paying tax as a HUF assessee was an attractive way to save the tax. But now it is not as alluring for tax saving as it used to be in the past.

Few Takeaways About Hindu Undivided Family

First and foremost, HUF comes into existence automatically; so it is not formed through a legal process though registration is required
To file income tax for HUF, it is necessary to apply for a Permanent Account Number with the income tax department.
How many families are detaching from the concept of the HUF as the tax regime is not as attractive as it used to be.
However, if you were filing income tax returns as a HUF assessee in the past and want to cease it, the task is complicated and it is not simple.

What is a Hindu Undivided Family?

A HUF comprises the ‘Karta’, usually the eldest male member in the family. Although sons, daughters and grandchildren are coparceners; however, they have an equal right to the property.

How Can it Be Dissolved?

A HUF can only be dissolved only after the division or partition of the property. So for the dissolution of HUF, the HUF family must form a deed of partition and distribute the aforesaid properties amongst the members (the Karta and the coparceners).

All the family members must be a part of the deed. The deed needs to have a specification of all the properties that are part of the HUF which the family members shall divide amongst themselves. The division of the assets must align with the provisions of the Hindu Succession Act.

However, as per the income tax act, there is no partial partition of HUF. Partition means full partition. Coming to the dissolution of the HUF, a family needs to have a deed of full partition (not partial) and it should be registered with the signature of all members. Once the partition is completed, HUF shall cease to exist.

However, If there is no partition, the income tax department shall continue to assess the entity, and the family members shall have to file returns.

Alternatively, if the partition is over, the family members then can write and refer to the assessing officer to surrender the Permanent Account Number of the Hindu Undivided Family.

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