Under the India income tax provisions, HUF is considered as having distinct legal identity. There are few ambiguities with regard to its creation and taxation of its income. It is to be noted that, in case somebody transfers his own assets for forming Hindu Undivided Family, it not acceptable and the income from such assets will be taxed in the hands of such individual transferring the assets.

However, in the following situations the status can be treated as HUF and accordingly separate assessment can take place for the HUF –

(a) If the income is generated from the ancestral assets (earlier belonging to the forefathers of the Individuals) or by investing the sale proceeds of such ancestral assets;

(b) If the income is earned from the assets received by a married individual, on partition of a bigger HUF i.e. the HUF of father or grand father;

(c) If the income is received from investing the money received as gift collectively in favour of the members of a HUF from any relative or any person other than the Karta or any members of such HUF.

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