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Abolition Of HUF as a Tax Entity

The first and foremost reform in pursuing and securing a uniform civil code for all citizens of
India is to abolish the Hindu Undivided Family (HUF) as a separate entity under the Income Tax
Act, 1961. The privileged tax treatment of the HUF represents very substantial revenue loss to
the exchequer. Treating HUFs as a separate entity also threatens the basic essence of secularity
that has been embodied in the spirit of India.

An HUF is a separate entity for taxation under the provisions of section 2 (31) of the IT Act. This
is in addition to an individual as a separate taxable entity. The HUF is treated as a person distinct
from individual members of the household. This means an individual is assessed in two different
capacities as an individual and as a karta of her HUF. The maximum amount exempt
from income tax is Rs 2,50,000 for both individuals and an HUF. In addition to this basic
exemption, an HUF is eligible to all those exemptions that are available to an individual resident.

An HUF can be defined as a family that consists of a common ancestor and all his lineal male
descendants and their wives and unmarried daughters. An HUF is definitional a family of
Hindus. However, even Buddhists, Jains and Sikhs are regarded as Hindus, and can, therefore,
set up HUFs (though Sikhism, Jainism and Buddhism are separate and distinct religions). The
concept of an HUF has evolved from ancient Hindu law.

An HUF entity has become a mere tax planning tool in the hands of tax consultants who advise
affluent Hindus. The creation of an HUF helps taxpayers to save on substantial taxes. For them,
another vista of saving income tax lies through the creation of a separate tax entity. Apart from
getting the basic exemption of Rs 2,50,00, it brings substantial tax savings because of the
innumerable tax exemptions and deductions which are scattered in the income tax law, which
provides that these exemptions and deductions are to be separately available to the HUF. The
laws of succession/inheritance and property rights are primarily used by an HUF to file
exemptions and transfers in order to reduce their tax liability. This, cumulated with numerous
other factors, benefits an HUF greatly and cause disparity between the two different units of tax
payers. The super rich in India are the biggest beneficiaries of the HUFs status in the IT Act.
This is patently unjust and discriminatory to religious minorities like Parsis, Christians, Muslims
and Jews who can not set up such separate tax entities and save on taxes.

Although sociological studies and surveys have indicated a decline in the joint family system, the
number of HUFs as a tax entities are increasing every year. Though the principles of
spindaship (sharing a house, food and a place of worship) are not followed, yet on paper their
family is classified as an HUF. The primary reason for this is that beneficiaries can then save a
greater proportion of their income by being protected under the cover of exemptions and transfer
facilities available to an original HUF. These benefits get multiplied even more because of small
size of these families.

All citizens of India are equal before law, particularly in relation to the application of tax laws.
The principles of equality before law and the revenue considerations of a state supersede
religious rights. There are about 10,00,000 HUF assesses who are filing tax returns in India
(there were 8,40,720 in 2012-13 and 9,40,061 in 2014-15, according to statistics from the income
tax department). We estimate that the revenue loss to the government of India would be
thousands of crores of rupees annually. The revenue loss is actual loss suffered by the nation and
not a notional loss, as in the case of telecom spectrum allocation. Nowhere in the world does
such patently unjust discrimination exist and is such a class of tax assesses is allowed, that too on
the basis of religion.

These are the opening words of the preamble of constitution:

WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into
a SOVEREIGN, SOCIALIST, SECULAR, DEMOCRATIC, REPUBLIC and to secure all
its citizens:

JUSTICE, social, economic and political;

LIBERTY of thought , expression, belief, faith and worship;


EQUALITY of status and of opportunity; and to promote among them all

FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation
The directive principles of state policy, embodied in part IV of the constitution, are directions
given to the state to guide the establishment of an economic and social democracy, as proposed
by the preamble. Article 44 provides that The State shall endeavour to provide for its citizens a
uniform civil code throughout the territory of India, by eliminating discrepancies between
various personal laws currently in force in the country.

The right to equality is one of the chief guarantees of the constitution. It is embodied in Articles
14-16, which collectively encompass the general principles of equality before law and non-
discrimination. Article 14 guarantees equality before law as well as equal protection of the law to
all persons within the territory of India. This includes the equal subjection of all persons to the
authority of law, as well as equal treatment of persons in similar circumstances. Article 15
prohibits discrimination on the grounds only of religion, race, caste, sex, place of birth, or any of
them.

The government should not perpetuate unjust enrichment of affluent sections of a dominant and
majority religion and injustice to other religious minorities. It should, then, initiate immediate
steps to abolish HUF status as a separate entity in the IT Act. In the interim, for the current
financial year, the prime minister should appeal to HUF assesses to renounce and forgo their
HUF status in the interest of government revenue of thousands of crores of rupees annually and
nation building, like in the case of the LPG subsidy (which in any case is a insignificant amount
in comparison).