Family arrangement is a transaction between the family members for the benefit of the family. The term family has not been defined under any act, but a vast meaning is provided by the courts by way of judgement. It is an attempt to sink in the differences and settle without the interference of a court or a third party and to maintain the peace and prestige of the family.
Why Family Arrangement?
Family arrangement is a compromise between the parties where everybody in the said family have a WIN-WIN situation. It saves a lot of time and money, and mainly restores the peace and reputation of a family.
So is it same as Partition of an HUF?
No, Partition of a HUF is different from that of the family arrangement. After a family arrangement the HUF might get partitioned or not, depends upon case to case.
Eg for Family arrangement but not partition of HUF:
Mr.X is looking after an ancestral property. It was acquired by the government for expansion of road under compulsory acquisition. There is money now in the hands of Mr.X. The family also holds a number of other properties. A family arrangement can be entered into to share the cash received on compulsory acquisition and not to share the other properties. Hence, the HUF still isn't partitioned and holds the other properties.
Whether family arrangement needs to be registered?
Again this depends from case to case. But one point to be noted is that the family arrangement can be even orally done. Remember the cinemas where the head of the panchayath gives a ruling on distribution of property and all the family member accept. As long as the family arrangement is done is good faith there is no requirement of it being registered.
Does a family arrangement lead to capital gains and in turn is tax needed to be paid to the government?
The term transfer defined in the income tax act does not include family arrangements, logically also there is no transfer of property though there is transfer of ownership. However, these transactions to be called family arrangement needs solid proof. and the transactions needs to be planned properly to save taxes. Ask a CA or a tax practitioner to help you in these cases.
One advice from our team is that if at all you have a family arrangement and get a share in the property by way of cash/cheque, open a bank account in the name of your HUF and deposit it there. Any investments again can be done from the account only to which you will be the karta. This will serve as a tax saving measure to all of you.
Suggestions and Queries welcome.
Contact us at mrpraveen@live.com or post your query on our facebook wall.
Why Family Arrangement?
Family arrangement is a compromise between the parties where everybody in the said family have a WIN-WIN situation. It saves a lot of time and money, and mainly restores the peace and reputation of a family.
So is it same as Partition of an HUF?
No, Partition of a HUF is different from that of the family arrangement. After a family arrangement the HUF might get partitioned or not, depends upon case to case.
Eg for Family arrangement but not partition of HUF:
Mr.X is looking after an ancestral property. It was acquired by the government for expansion of road under compulsory acquisition. There is money now in the hands of Mr.X. The family also holds a number of other properties. A family arrangement can be entered into to share the cash received on compulsory acquisition and not to share the other properties. Hence, the HUF still isn't partitioned and holds the other properties.
Whether family arrangement needs to be registered?
Again this depends from case to case. But one point to be noted is that the family arrangement can be even orally done. Remember the cinemas where the head of the panchayath gives a ruling on distribution of property and all the family member accept. As long as the family arrangement is done is good faith there is no requirement of it being registered.
Does a family arrangement lead to capital gains and in turn is tax needed to be paid to the government?
The term transfer defined in the income tax act does not include family arrangements, logically also there is no transfer of property though there is transfer of ownership. However, these transactions to be called family arrangement needs solid proof. and the transactions needs to be planned properly to save taxes. Ask a CA or a tax practitioner to help you in these cases.
One advice from our team is that if at all you have a family arrangement and get a share in the property by way of cash/cheque, open a bank account in the name of your HUF and deposit it there. Any investments again can be done from the account only to which you will be the karta. This will serve as a tax saving measure to all of you.
Suggestions and Queries welcome.
Contact us at mrpraveen@live.com or post your query on our facebook wall.
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