HUF partition and Capital Gain

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This discussion explores capital gains tax when a Hindu Undivided Family (HUF) undergoes a partial partition. The Karta proposes to buy out his younger brother's share of a jointly owned residential house with cash, rather than physically dividing it. While a family settlement deed is drawn up, questions arise whether this cash settlement constitutes a relinquishment of rights, thereby triggering capital gains tax on the younger brother's share.

Naveen Kumar Jain

Naveen Kumar Jain (Querist)
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12 September 2023 HUF owns a residential house and Karta is using it for his residence, The HUF consists of Karta and his younger brother and their respective wife and children. The younger brother and his family wants to separate and want their share of joint property, which is the residential house.
The Karta does not want to physically divide the house, and being a single unit can not be so divided and hence proposes to pay 50% of property value to the younger brother and his family. For the purpose they draw a Family settlement deed to give effect to it.
Being a partial partition of HUF and family arrangement , it does not amount to transfer and hence is normally not subject to capital gain. Doubt has arisen whether it may be viewed as relinquishment of 50% share in joint property by younger brother in lieu of receiving the money ( consideration) and hence transfer of his right in the property which is long term asset.
Please provide your views.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 September 2023 Consideration received for relinquishment of right in property is assessable under the head ‘income from capital gains’.

Naveen Kumar Jain

Naveen Kumar Jain (Querist)
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13 September 2023 Sir, he is receiving money as share of his portion of ancestral wealth as inheritance and on separation from HUF and as per family settlement . It is not relinquishment of his right, but satisfaction of his right. Why should any capital gain arise?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 September 2023 Receiving cash against joint property ownership will fall under relinquishment of rights. Capital gains tax arises.

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