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

Under the Income-tax Act, a Hindu Undivided Family (HUF) is a separate taxable entity. Which statement about the tax treatment of an HUF is correct?

An HUF is a separate taxable person, so it is assessed on its own income and gets its own basic exemption limit, apart from its members. It is taxed at slab rates, not a flat rate, and its income is not clubbed with the Karta's.

  1. AAn HUF is taxed at a flat rate irrespective of its income
  2. BAn HUF is treated as a separate person and can claim the basic exemption limit separately from its membersCorrect
  3. CAn HUF cannot claim any deduction under Chapter VI-A
  4. DIncome of an HUF is always clubbed with the income of its Karta

Explanation

An HUF is a separate 'person' for tax purposes, so it gets its own basic exemption limit and is taxed on slab rates. It can claim eligible Chapter VI-A deductions where the regime allows. Its income is not clubbed with the Karta's income, so the flat-rate and clubbing options are wrong.

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