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What are the legal provisions for an HUF?

Author: Balwant Jain/Wednesday, March 13, 2019/Categories: Exclusive

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What are the legal provisions for an HUF?

As the word “Hindu” itself denotes, only a Hindu can be a part of a Hindu Undivided Family (HUF). The word Hindu for the purpose of having an HUF is construed liberally and includes Jains, Sikh and Buddhists. However, Muslim, Pareses, Jews and Christians cannot claim tax benefits of an HUF. An HUF includes four generation of descendents from a common ancestor as its members. An HUF is created by operation of law and therefore cannot be created by actions of a person.

Difference between a coparcener and members of the HUF

Any person born in a Hindu family is considered as a coparcener and anyone who becomes part of the family through marriage is a treated as a pure member. However, a person who is adopted into the family also becomes its coparcener from adoption though not born in the family. Before amendment of the Hindu Succession Act, 1956 in 2005, only male members born in the family were treated as coparceners. Daughters were treated as members of the HUF only. But after the amendment of the law, an HUF comes into existence as soon as a  child is born to a Hindu couple. However, a married Hindu couple itself can constitute as an HUF if any ancestral property is received by it. So a new HUF can only come into existence after birth of a child in the family whether a boy or a girl.

All the coparceners by default are members of the HUF but vice-versa is not true. All the members of the HUF have a right to be maintained out of funds owned by the HUF.  The widow and children of a deceased coparcener, who are also members of the HUF, have a right to be maintained out of HUF assets. Only a coparcener can ask for partition of HUF assets. Other members do not have any right to seek a partition but are entitled to receive their respective shares in the HUF property as and when the assets are partitioned.

Management of affairs of the HUF

An HUF is managed by a Karta who is usually the senior-most male member of the family. A Karta can delegate some of the power of management of affairs to a manager. A manager need not be a member of the HUF and can be a paid employee as well.

A widow cannot act as Karta as she is not a coparcener. Likewise a minor also cannot act as Karta as he is not competent to contract as per the Indian Contract Act, 1872. However, a widow can act as Karta of the HUF representing the minor. After marriage a daughter continues to remain coparcener of her father’s HUF and at the same time becomes member of her husband’s HUF. As decided by Delhi High Court in the case of Mrs. Sujata Sharma versus Shri Manu Gupta delivered rendered in 2015, a daughter can act as a Karta of her  father’s HUF. However since she is not a coparcener of her husband’s family, she cannot be a Karta there.

Residential status for tax Laws

As income in India is taxed on the basis of your residential status, it is important to understand the rules for determining residential status of the HUF. An HUF is treated as non resident for income tax purposes if whole of the control and management of affairs of HUF is situated outside India during the full year. So in case a small part of management remains in India it will become resident of India, for tax purpose. For determining the control and management of the HUF, the physical presence of the Karta is not relevant but what is relevant is the where decision of the management of affairs of HUF are taken. The residential status has to be checked every year and may change over the period.

The author is tax and investment expert and can be reached at jainbalwant@gmail.com

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1 comments on article "What are the legal provisions for an HUF?"

RP

3/17/2019 9:24 PM

In some articles as well as advised by Banks MFs we understood that wife of Karta is said to the coparcener of her husband's HUF and as widow can be Karta thereof whereas from your article we have understood that she is coparcener of her father's HUF and only member of her husband's HUF and if widow cannot be Karta of her husband's HUF. Can you kindly elaborate & confirm? Thanks

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