To
The
Hon’ble Finance Minister,
Government
of India
Subject: WHY A COMMUNAL TAX IS
ONGOING ON HINDU FAMILIES AS HUF?
The Constitution of India
requires that the country will act as a secular system. Governments expect
secular conduct from the common people but have not been able to remain secular
themselves. A great example of this is that of the Hindu Undivided Family (HUF)
which was not only included in the Hindu Succession Act but also in the Income
Tax Act as a person.
HUF has been promoted as a tax
saving tool, but, if it is really a tax saving tool, then why only on Hindu
families? Why not apply to non-Hindu families also?
The reality is something else.
The HUF system is not useful for Hindu business families in the low and middle
income group, but discouraging to entrepreneurship even though it appears to be
beneficial for the higher income groups in comparison to partnership and
company.
After Independence, every
possible effort has been made to discourage Hindus from cooperative/collective
efforts. Hindu Undivided Family (HUF) is a clear case in example. HUF was initiated in 1917 under the divide and rule policy of the British government. HUF
was later included in the Hindu Succession Act in 1956. This concept got
impetus with its incorporation in the Indian Income Tax Act, 1961. It has been
propagated overtly as an incentive measure for businesses by hindu undivided
families. Its real implications are highly negative, even more than a Jizya tax
on hindu families. For any business
undertaken by some members of a hindu family, it will be taxed
collectively at first level leading to tax liability in higher slab. If the
same business is undertaken by a non-hindu family, first the members will get
share in profits and then each member will be taxed individually leading to no
or very low tax liability in lower slabs.
For example, let us take a
simplified case. Suppose, three members of a hindu family earn a net taxable
profit of ₹30 lakhs in a previous year. Tax liability as HUF will be ₹7,12,500
for the whole family and ₹2,37,500 for each member. But if the same business is
run by any non-hindu family, the whole family will be not be taxed as HUF.
Rather each member will get share in the whole profit of ₹30 lakhs. If profit
is equally shared as an individual share of ₹ 10 lakh there will be individual
tax liability of ₹112,500 as compared to ₹2,37,500 in HUF case. Assuming there
is no other income of members in both cases, total tax liability will be ₹3,37,500
in non-HUF case as compared to ₹7,12,500 in HUF case. In this way,
tax-liability on business by a hindu business family is more than double than
that on a non-hindu family.
Is it not a great
discouragement for any hindu family to have a successful business? HUF should
be eliminated from the Hindu Succession Act and Income Tax Act to eliminate
such Jizya like discrimination against hindus. Eight years of rule is
sufficient to pay attention by the Government.
It is also disturbing to note
that the HUF is taxed for business just like a business unit but the low tax
rates applicable to company businesses and coporate concessions are not
available to HUF. Is this not responsible for utter lack of entrepreneurship in
the middle class Hindu families since Nehru era?
It is not difficult to
understand as what kind of secularism we have been preaching so far and how low
or middle class Hindu families have been discouraged from undertaking business
or economic ventures! It also notable as to what extent income taxation on HUF
is consistent with constitutional secularism, socialism and equality.
#Professor
R P Singh,
DDU
Gorakhpur University, Gorakhpur
Date:
28/03/2022
