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HUF (Family Entity)

When is a family HUF non-resident, and when is it taxed only on Indian income

The karta lives abroad, so you assume the HUF is non-resident, but the test is not about the karta's residence.

Your family HUF has an NRI karta, or several coparceners abroad, and you want to know whether the HUF itself is non-resident, because that decides whether its foreign income is taxed in India. The intuitive answer, that an NRI karta means an NRI HUF, is wrong, and getting it wrong either over-taxes the family or leaves foreign income wrongly untaxed. The real test looks at where the HUF is controlled and managed, and there is a second step, a not-ordinarily-resident status, that does bring the karta back into the picture. It is worth getting the two steps straight.
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Last reviewed: 26 July 20267 min readReviewed by Preetesh Maloo, CA

The short answer

An HUF is resident in India if the control and management of its affairs is situated wholly or partly in India during the year, and it is non-resident only if that control and management is wholly outside India. So the test follows the HUF, not the karta's personal residence, and an HUF with an NRI karta can still be resident if any part of it is run from India. Within resident status there is a second step: the HUF is not ordinarily resident, and so taxed only on Indian income, if the karta was a non-resident in nine of the ten preceding years or was in India for 729 days or less in the preceding seven. A non-resident or not-ordinarily-resident HUF is taxed only on its Indian-source income.

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Related situations

Step one: control and management, not the karta

The basic test sits in Section 6(2), and the operative word is wholly. An HUF is resident if the control and management of its affairs is situated wholly or partly in India during the year. It is non-resident only if that control and management is situated wholly outside India. So even a small part of the HUF being run from India, a coparcener taking decisions there, the family's banking and assets handled in India, keeps it resident.

The key consequence is that the test follows the HUF, not the karta. An HUF with an NRI karta abroad is not automatically non-resident; if any part of its control and management remains in India, it stays resident and is taxed the ordinary way. The common myth, my karta is an NRI so our HUF is an NRI HUF, is simply false unless the whole management has genuinely moved abroad. For most families with roots and property in India, that is a high bar to cross.

Step two: the not-ordinarily-resident sub-test

Being resident is not the end of it, because a resident HUF can still be not ordinarily resident, which limits what India taxes. This second step, in Section 6(6), does look at the karta. A resident HUF is not ordinarily resident if its karta, the manager, was a non-resident in nine of the ten years preceding, or was in India for 729 days or less in the seven years preceding.

So the two steps work differently and are easy to conflate: step one decides resident or non-resident by the HUF's own control and management, ignoring the karta's personal residence; step two, only if the HUF is resident, brings in the karta's history to decide ordinarily or not ordinarily resident. The practical payoff is the same at the end: a non-resident HUF and a not-ordinarily-resident HUF are both taxed only on Indian-source income, with foreign income left out, while an ordinarily resident HUF is taxed on its worldwide income. Placing the HUF correctly across these two steps is what a CA does before filing.

What's involved

What the CA actually does

  1. 1

    We apply the control-and-management test

    We decide resident or non-resident on where the HUF is actually run, not on the karta's personal residence, so the status is right.

  2. 2

    We run the not-ordinarily-resident sub-test

    For a resident HUF, we check the karta's years and days to see whether it is not ordinarily resident, which narrows what India taxes.

  3. 3

    We set the scope of income

    We tax a non-resident or not-ordinarily-resident HUF only on its Indian income, and leave foreign income out where the law allows.

  4. 4

    We keep it consistent year to year

    We track the karta's presence over the rolling years so the status is reassessed correctly each year, not fixed once.

What to have ready

Documents you'll typically need

  • Where the HUF's decisions, banking and assets are managed
  • The karta's residency and days in India, year by year
  • The HUF's Indian and any foreign income
  • The HUF's PAN and prior returns

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next, how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 46 countries.

References on this page

  • Section 6(2): an HUF is resident if control and management is wholly or partly in India; non-resident only if wholly outside
  • The basic residence test follows the HUF's control and management, not the karta's personal residence
  • Section 6(6)(b): the HUF is not-ordinarily-resident if the karta was non-resident in 9 of 10 preceding years, or in India 729 days or less in 7 years
  • A non-resident or not-ordinarily-resident HUF is taxed only on Indian-source income

Frequently asked questions

Common questions

Not automatically. An HUF is non-resident only if its control and management is wholly outside India. If any part is run from India, it stays resident whatever the karta's status, so an NRI karta alone does not make an NRI HUF.

Where the HUF is controlled and managed (Section 6(2)), not the karta's personal residence. Wholly or partly in India means resident; wholly outside India means non-resident.

Less than families fear, and more than they plan for. The Supreme Court settled the meaning in CIT v. Nandlal Gandalal: control and management means de facto control, the head and brain of the affairs, the place where the directing power actually sits. It is not the mere right to control, and it is not routine administration. So a cousin in India who collects the rent, a clerk who pays the property tax, a tenant paying into the HUF's account, none of that is control by itself, and a family whose decision-making has genuinely moved abroad is not dragged back by day-to-day errands. The other side is what catches people. If a resident coparcener is the one actually deciding, which holding to sell, which property to let, how the family's money is deployed, and the karta abroad signs off afterwards, then the head and brain is in India however the paperwork reads. The evidence follows the same line: who holds the bank and demat mandate and who instructs it, who signs the return and from where, who negotiates with tenants and buyers, and where the books are kept. Because the test needs control to be wholly outside India, one genuine act of direction taken here makes the HUF resident, so this is worth re-checking each year rather than treating as settled.

A second step within resident status. A resident HUF is not ordinarily resident if its karta was a non-resident in 9 of the 10 preceding years, or in India for 729 days or less in the preceding 7 (Section 6(6)). It is then taxed only on Indian income.

Yes. A non-resident or not-ordinarily-resident HUF is taxed only on Indian-source income, foreign income left out. An ordinarily resident HUF is taxed on worldwide income.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Primary residence test: days in India

Right now: 182 days

Where it works differently

The person is an Indian citizen leaving India for employment abroad, or as a crew member of an Indian ship
Only the 182-day test applies. The 60-day secondary test is disabled.
Explanation 1(a) to s.6(1)
Counting days
The day of arrival AND the day of departure both count as days in India.
Settled administrative practice; partial days count as whole days.
The financial year straddles a move
Residence is decided for the WHOLE financial year, not from the date of the move. India has no split-year concept, unlike the UK.
s.6 is a full-year test.

Commonly got wrong

  • You become an NRI the day you leave India. True for FEMA, false for income tax. Under FEMA residence changes on departure with intent; under the Income-tax Act it is a full-year day count.Name which law you mean. Say 'non-resident under FEMA from the day you leave' or 'non-resident for income tax if you are in India under 182 days in that financial year'.
  • India has split-year treatment. It does not. Only the treaty tie-breaker resolves a dual-residence year.Point to Article 4 of the relevant DTAA.

RNOR qualification tests

Right now: Non-resident in 9 of the 10 preceding years, OR in India for 729 days or less in the 7 preceding years

Where it works differently

A long-term NRI returns to India permanently
Typically RNOR for two financial years, sometimes three depending on the return date and prior visits.
Both limbs are tested each year; the exact count depends on actual travel history.
The NRI visited India frequently while abroad
RNOR may last only one year, or not apply at all.
The 729-day limb is cumulative across seven years.

Commonly got wrong

  • RNOR always lasts three years. It depends on actual day counts. Two years is the common case; three is not automatic.Say 'usually two years, sometimes three, depending on your travel history', and compute it.
  • RNOR status exempts NRE interest. NRE exemption is tied to FEMA non-residence, which usually ends on permanent return, before RNOR does.Separate the two: RNOR covers foreign income; NRE exemption ends with FEMA residence.

Related

If this matched your situation, these go further

Running your family HUF from abroad, as the kartaDividing the family HUF: what a partition costs in taxGifts to and from an HUF, and the tax when the HUF sells propertyNRI ITR filing (we file for you)DTAA TDS recoveryNRI estate planningCapital gains calculator

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