How to close HUF with Income Tax department

The process is not straightforward if you were filing income-tax returns for an HUF separately and want to stop it.

To save tax, Hindu Undivided Family (HUF) was a popular way for many families. HUF has been treated as a separate assessee by the income-tax department. Its returns can be filed separately and it can get all tax deductions available to individuals.

HUF means a Hindu family, and it comes into existence automatically. It is not formed through a legal process to be clear. There is an option to file returns for HUF. The family needs to apply for a PAN (permanent account number) with the income tax department to do this.

As the structure is not as attractive many families are moving away from using HUF to save tax as it was some years back. The process is not so straightforward if you were filing income-tax returns for an HUF separately and want to stop it.

An HUF comprises a ‘karta’, who, typically, is the eldest male in the family. The sons, daughters and grandchildren are coparceners who have an equal right to the property. After the partition of the property, an HUF can be dissolved. The family must execute a deed of partition and distribute properties amongst the members (karta and coparceners) for this.

The division of assets must be in line with the provisions of the Hindu Succession Act. All family members must be part of the deed. The deed should spell out all the properties that are part of the HUF, which family members are dividing among themselves.

The Income-tax Act does not recognise a partial partition dissolution of HUF. A family needs to draw up a deed of full partition and get it registered with the signatures of all members for dissolution of the HUF. Once the partition of HUF is complete, it will cease to exist.

The income tax department will continue to assess the entity, and the family members will need to file returns if there is no partition.

The family members can write to the assessing officer to surrender the PAN once the partition is over.