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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Tax Provisions for Special Cases

Under the Income-tax Act, 1961, a Hindu Undivided Family (HUF) is formed when which of the following occurs?

An HUF is a joint family under Hindu law made up of lineal descendants of a common ancestor with their wives and unmarried daughters. The Income-tax Act treats it as a separate taxable entity, distinct from a partnership, a company or a single individual.

  1. ATwo unrelated persons enter into a partnership agreement
  2. BA single individual lives alone and inherits ancestral property
  3. CA joint family, consisting of lineal descendants of a common ancestor along with their wives and unmarried daughters, exists under Hindu law and is assessed as a separate taxable entityCorrect
  4. DA company is incorporated by family members

Explanation

An HUF is a separate taxable entity under the Act and consists of persons lineally descended from a common ancestor, including wives and unmarried daughters. Partnership and company are distinct entities. A lone individual cannot form an HUF, since it requires at least two members.

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