After my article on [tax benefits available to a Hindu Undivided Family (HUF)] some of my friends have requested me to write more on the legal aspect of the HUF. This article deals with the legal aspect of an HUF.
Who can have an HUF and how it comes into existence?
Since the word “Hindu” is part of it, only a person who is Hindu can have an HUF. The word Hindu here has been used here in liberal way and includes the person of Jain, Sikh and Buddha religion. So a Muslim, Pareses, Jews and Christian can not have an HUF. An HUF can have four generation of descendents from a common ancestor as its members. An HUF is creation of law and can not be created by acts of the persons.
What is the difference between a coparcener and members of the HUF
Any person who takes birth in the family is treated as coparcener and the one who comes in the family due to marriage is a pure member. Moreover a person who is adopted into the family is also treated as a coparcener. Prior to amendment in the Hindu Succession Act, 1956 in 2005 only male members could become coparceners and daughters would only become a member. So now an HUF will come into existence as soon as any child is born to a Hindu couple. However husband and wife themselves can constitute an HUF if any ancestral property is received from the ancestors of the male. So fresh HUF can only come into existence after birth of a child in the family.
All the coparceners are members of the HUF but vice versa is not true. All the members including coparceners have a right to be maintained out of the funds of the HUF. The widow and children of a deceased coparcener have the right to be maintained out of the HUF property. It is only the coparcener who has the right to ask for partition of the HUF assets to claim his/her share. The pure members do not have the right to ask for a partition but will get their share in the HUF property as and when the partition takes place. As daughter is treated as a coparcener after the amendment in the law, she can also ask for partition of the assets of the HUF.
How the affairs of the HUF are managed
The HUF is managed by a Karta who is usually a senior most male member in the family. In case the senior most male members is not willing to act as Karta, any other coparcener can be appointed as Karta, by the family, to manage affairs of the HUF. A Karta can appoint any person to act as a Manager of the HUF to manager affairs of the HUF who need not be a member of the HUF.
A widow cannot act as Karta as she is not a Coparcener. Likewise a minor cannot be appointed as Karta as he is not competent to contract as per the provisions of Indian Contract Act, 1872. However a widow can act as Karta representing the minor. After marriage of the daughter the daughter continues to remain the coparcener of her father’s family and at the same time becomes member of her husband’s HUF. As per a Delhi High Court decision in the case of Mrs. Sujata Sharma versus Shri Manu Gupta delivered rendered in 2015 , even a daughter can act as a full fledged Karta of his father’s HUF. However since she is not a Coparcener of her husband’s family, she can not become a Karta there.
Residential status under the Income Tax Laws
Since your income in India is taxed based on your residential status, it is important for us to understand how the residential status of the HUF is determined as it is not a physical person. An HUF is treated as non resident of India if and only if whole of the control and management of the affairs of HUF is situated outside India. So even if small part of management remains in India it will become resident for tax purpose. It is not necessary that for determining the control and management of the HUF, the physical presence of the Karta is to be taken into account. An HUF can be resident of India in a situation where the Karta is residing outside India for the whole years but the affairs of the HUF are managed by a manager under direction and guidance of the Karta.
The author is tax and investment expert and can be reached at firstname.lastname@example.org and @jainbalwant