Joint Hindu Family Business: A Unique Indian Model

Vedantu provides a complete understanding of the topic of the Joint Hindu family or HUF. It is an important topic for the students of commerce because it is something unique that is only prevalent in India, and hence understanding the complete concept of the joint Hindu family is important for all the students. But even more than that, students must have a good explanation of the topic as well. Because the explanation is not good, then it makes the topic difficult for the students and ultimately demotivates them.

Hence, Vedantu provides a complete explanation of the topic in an easy-to-understand language. And along with its explanation, Vedantu also provides the students with the Features of it as well, along with the merits of joint Hindu family, as well as, demerits of the same. Hence, for the students of commerce Vedantu provides a wholesome package for the topic of joint Hindu family.

An Overview of the Joint Hindu Family Business, HUF

The joint Hindu family, or Hindu undivided family, or simply HUF, is an extended family prevalent throughout India. A joint Hindu family business is composed of many generations that live in the same household and are bound by a common relationship, that is to say, it is composed of all the persons who are direct descendants of one common ancestor. Under section 2(31) of the income-tax Act, 1961, the Hindu undivided family is treated as a person. Also, for the purpose of assessment under the act it is, HUF, is regarded as a separate entity.

Technically, at the time of the Hindu Marriage, the Hindu Undivided Family takes place by itself, but for the purpose of tax, it is still not a separate entity, because it can only become a separate entity for the tax purpose when a child is born. Actually, according to the law, there have to be at least two persons dependent on the Karta, that is to say, the manager, and hence when a child is born, the father or the mother can become a Karta, with two companions. Once the Joint Hindu Family is formed, it gets its own permanent account number (PAN).

As said, there is always a Karta in the Hindu undivided family, which can technically be anyone, but mostly the eldest members of the family become Karta. And in such a manner Hindu undivided family remains a person in the eyes of the law, from generation to generation.

A Joint Hindu Family Business is an entity, rooted in permanence since its business operations are hardly affected by the death or passing of any of its members. Lunacy or bankruptcy suffered by any member does not have an impact on the activities of such a business. Despite this, there are some limitations of a joint Hindu family business as well as some advantages, that will be discussed below.

All business dealings within a joint family business in India are regulated by the Hindu Law, and not the Partnership Act, which controls other business models. The business is usually overseen by the eldest member of the family or the head, called the Karta. All other members have equal rights over their ancestral properties and are called co-parceners.

Find Out: Can families of other religions and faiths form a model similar to the HUF?

What are the Features of a Joint Hindu Family Business?

The business ventures of such a family model are strictly controlled by the Hindu Law, which is made up of two components, the Dayabhaga and the Mitakshara.

• Dayabhaga

The Dayabhaga system is widely followed in West Bengal and Assam, wherein, both male and female members of the family are allowed to be co-parceners. Also, a son can claim right to ancestral property, only after the death of his father.

• Mitakshara

The Mitakshara model is heeded to by all states in India, excluding West Bengal. It allows proprietorship to only male members of a joint family business meaning that only men in the family are allowed to be co-parceners.

In both the models, the Karta exercises ultimate control over business activities, and his decision is final.

Disadvantages of A Joint Hindu Family Business

1. The model of an HUF does not allow external members or additional participants, other than the family members, thus leaving no space for additional capital or investments from the market.

2. The expansion of such a business is limited, as all decisions are internal and solely family-centric.

3. The Karta may not always be the most qualified person to lead the family business. In such cases, the decisions made by him and his business acumen may be questionable.

1. Exercise: Mr Sen is an aspiring businessman who decides to start an HUF after the demise of his father. Analyse the following table to understand how his HUF functions and Mr Sen is able to save taxes.

Income From Different Sources

Thus, total tax paid by Mr Sen and HUF is Rs.  and taxes saved by forming the HUF is Rs. .

For more on these, browse through our articles and sample papers on different forms of business organisations, available on our website. Download the Vedantu app and participate in live classes and demonstrations, practise questions and revise your concepts instantly.

A Joint Hindu Family Business is an entity, rooted in permanence since its business operations are hardly affected by the death or passing of any of its members. Lunacy or bankruptcy suffered by any member does not have an impact on the activities of such a business. 

Advantages of Hindu Undivided Family

There are many advantages of Hindu Undivided Family, which are as under:

In the Hindu undivided family, the Karta is in a possession of absolute power, and hence if any sort of disagreements occurs, chances of which are obviously very high given the number of members, then in such cases the Karta can easily resolve the problem.

• The Hindu undivided family gets the benefit in the tax as well.

• As the joint Hindu family is formed by the members of the same family, the level of loyalty, co-operation, and mutual understanding is always high.

• As the Joint Hindu family is a person in the eyes of Law, like any other company, it can never cease to exist.

• Since the Karta holds the absolute power in the Hindu undivided family, it is easy to maintain the balance between power and liability.

• If you wish to learn about the other forms of business organization, follow this link.