My father had an HUF. Both my Father and Mother passed away without writing a will. The HUF has a house and a bank account. We are 2 brothers and no sisters. I being the elder am Karta of the HUF. There are a total of 8 members in the HUF; 4 on each side. We want to partition the HUF, either wholly or partially. I am told that a partial partition can be done in which I give my brother half of the present cost of house and land and half of the bank account money.
A partial partition deed will have to be made which can be registered in the court of law. The HUF then continues with my 4 family members. Post the partial partition my brother and his family will have no claim in the HUF. Later at any given time, I can fully partition the HUF amongst my family after taking the ITO assessing officer’s concurrence. I am given to understand that in case of full partition, I have to go through the court of law only.
Answer: Under Hindu Law, there are no restrictions as to the partial partition of the HUF. However, the income tax laws do not recognise the partial partition. So, in case of partial partition, the income arising from the assets distributed to the members shall continue to be taxed in the hands of the HUF even if the HUF does not actually receive the income which will not serve any purpose.
There is no rule that under a partition the assets need to be distributed amongst the members equally. The assets can be given to a few members to the exclusion of others as long as all the members agree to it. So I would suggest you go for full partition of the HUF assets under which the cash can be distributed equally between both the brothers and then the same can be distributed equally between member of their family. The residential house can be given to members of your family without allotting any share to the branch of your brother’s family.
His share in the house can be gifted by you/your family members to your brother and his family members separately under a gift. Since the gift is being given by specified relatives, the same will neither attract any tax in the hands of your brother’s family. The assets distributed at the time of full partition of the HUF are fully tax-free in the hands of the recipient though you may have to pay stamp duty on the partition deed under the stamp duty law of your state.
Please note that the full partition deed is not required to be registered with any court. What you are required to do is get the fact of the full partition of the HUF recorded by the assessing officer.
Since the stamp duty would be payable on the partition deed, the better course of action would be to go for an oral family settlement and then record it in writing later on which will not attract any stamp duty, under which the bank balances can be distributed between members of both the families and your family branch can pay the branch of your brother for their share in the house property. Please note that in case you go for a registered family settlement deed, you may have to pay stamp duty as per the rates applicable in the state where the property is situated.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
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Updated: 13 Oct 2023, 12:57 PM IST