GST: HUF as Taxable Person under GST:

Scope

The definition of a ‘person’ under GST law includes a Hindu Undivided Family (HUF) as 2 (84) of CGST Act, 2017. HUF comes into existence automatically upon the marriage of a Hindu, Jains and sikhs which continues through sons and daughters are coparceners, with daughters having equal rights post 2005. HUF is a separate taxable entity under the income-tax Act. In HUF, all manages HUF affairs, and the property of individual members cannot be attached for HUF’s liabilities.

Concern

A Hindu Undivided Family (HUF) is recognized as a taxable person under GST. The Hindu Succession Act, 1956 (amended in 2005), grants equal rights to daughters as coparceners allowing them to remain members even after marriage.

Legally, there is a presumption that every Hindu family joint unless proven otherwise. A joint Hindu family exists not by contract but by operation of law. Importantly, the existence of ancestral property is not a prerequisite for the formation of an HUF. However, once an HUF possesses property, it is treated as a separate legal entity for taxation purposes.

The karta, being the senior-most male member (or in some cases, a female member), is responsible for managing its affairs, including compliance with GST regulations. Unlike individuals or companies, the personal property of HUF members cannot be attached for recovery of HUF’s tax liabilities.

If an HUF and their members are engaged in separate businesses, each entity can avail the GST exemption threshold separately.

Action

To ensure optimum compliances following steps can be taken:

  1. HUF must register under GST if its turnover exceeds the prescribed threshold. Tax planning should be done considering the nature of business conducted by HUF.
  2. The karta should maintain proper records of HUF transactions separately.
  3. Tax distinction between individual and HUF assets should be clearly documented to prevent wrongful attachment of personal assets.

Risk

HUF is not a common form of business due to which it is difficult to maintain books and compliance applicable to it. There is high risk of defective compliance among the planning of businesses held by HUF. In the event of division of HUF among coparceners, the liability of GST compliance can occur.

Additional Benefits:

Portfolio of family businesses can be managed efficiently by planning the business through HUF and individual proprietorship firms for GST registration. Different type of business can be registered under appropriate registration type-wise for co-registration.

If Family business includes some business where outward taxable supplies are exempted or attract RCM by recipient and other business attract GST under FCRA by planning can be done to optimize the tax and compliance burden.

CA Mahipal Sharma | Partner | FCA | CISA | B.Com
Contact: +91 7023030160 | email: mahipal013@gmail.com

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