Family Business Advisory & Succession Planning

Yes. An HUF is a separate assessable entity under Section 2(31) of ITA 1961 (Section 2(49) under ITA 2025). It files its own ITR-2 or ITR-3, claims its own basic exemption limit of Rs 2.5 lakh (or Rs 3 lakh under the new tax regime per Section 115BAC of ITA 1961, mapped to Section 202 under ITA 2025), and its income is not clubbed with the Karta's personal income except where Section 64(2) applies on self-acquired property converted to HUF property.

Section 56(2)(x) of ITA 1961 taxes any sum of money or property received without adequate consideration if the aggregate exceeds Rs 50,000 in a year. The proviso exempts gifts received from specified relatives, which includes siblings, parents, and spouses as defined in the Explanation to Section 56(2)(x). Gifts between an HUF and its members, or between co-parceners, also fall within the relative exemption. A gift deed evidencing the relationship and transfer must be retained to sustain the claim in assessment.

Conversion of a partnership firm into a company is exempt from capital gains under Section 47(xiii) of ITA 1961 (Section 50(2)(xiii) under ITA 2025) provided: all partners become shareholders in the same proportion as their capital, no consideration other than share allotment is received, and the converted company does not transfer those shares within five years (else exemption is withdrawn under Section 47A). The company's cost of acquisition is the written-down value of the assets in the firm's books per Section 49(1)(iii)(e).

Salary paid to a working partner is deductible under Section 40(b) of ITA 1961 subject to the limits in the partnership deed and the book-profit formula (Rs 3 lakh plus 60% of book profit above Rs 3 lakh for non-professional firms; 90% for professional firms). Salary paid to a salaried family-member employee is deductible under Section 37(1) provided it is reasonable and for actual services rendered. TDS on salary must be deducted under Section 192 of ITA 1961 (Section 392 under ITA 2025) at the applicable slab rate after accounting for the employee's tax-regime election.

A family settlement that merely acknowledges pre-existing rights is not a transfer within the meaning of Section 2(47) of ITA 1961 and therefore does not attract capital gains tax — a position confirmed by the Supreme Court in Hira Bai v. CIT and consistent with CBDT practice. For stamp duty, family settlements are chargeable as agreements under the relevant State Stamp Act (e.g., Article 5 of the Maharashtra Stamp Act); rates vary by state and by asset class. If one family member relinquishes a right for consideration, that consideration may be taxed as capital gains under Section 45 of ITA 1961 (Section 67 under ITA 2025) in the hands of the recipient.