Limited role for wife in HUF

She cannot be the karta but has the right to her husband's share in an estate after his death

Several landmark judgments have improved the woman's position in a Hindu Undivided Family (HUF), such as one that ruled the eldest daughter, even if married, can replace her father as karta in an HUF after his death. However, a karta's wife or daughter-in-law cannot replace him.

According to HUF laws, when a karta - or manager - of an HUF passes away, his eldest son automatically replaces him. But, cases where a karta only has daughter/s, or his children are minors, have been subjects of dispute.

WOMEN’S STATUS IN AN HUF

• In 2005, the Hindu Succession Act gave equal rights to daughters in an HUF
• Daughters can become karta as they are coparceners
• Wives and daughters-in-law cannot become karta as they are not coparceners
• The wife will get husband’s share in an estate after his death
• The wife can only be the guardian of an HUF after husband’s death until the eldest child becomes a major

The position of a karta is a powerful one, for this person controls, and is also the custodian of, the finances of an HUF. "The karta borrows money on behalf of the family. He can spend money for the family without being accountable to the members, as all his actions are assumed to be carried out for the benefit of the family. The decisions of the karta are binding on other members," says Hitesh Jain, senior partner at ALMT Legal. But, the karta cannot divide the estate disproportionately, or use the assets for the benefit of one member, without the consent of others. In an HUF, an individual does not have a claim on any assets unless they are partitioned. The assets belong to everyone and everyone benefits from them.

According to Daksha Baxi, executive director at Khaitan & Company, the Hindu Succession Act was amended in 2005 and now recognises daughters to be coparceners. This means they have rights in an estate, and can call for partition of the HUF. To be a karta in an HUF, a family member needs to be a coparcener. Subsequently, courts have ruled that because daughters are allowed to be coparceners, the eldest daughter can also succeed her father as karta in an HUF started by him. "But, if the father was a karta in his father's HUF, then typically the father's siblings, who are coparceners in the HUF, would have a first claim to be the karta," says Baxi.

Also, the Act recognises wives and daughters-in-law only as members of an HUF but not as coparceners. They, therefore, cannot become karta. "In case the karta passes away and is survived only by his wife and minor children, the wife can act as a guardian of the HUF until the eldest child turns major," says Baxi. This means, she can run the business, maintain property and file taxes. But, she cannot borrow or sell assets of the HUF.

If a person wants to pass assets he created to wife after his death, he can either make a suitable will or form a trust and make wife the sole beneficiary. In an HUF structure, it's not possible to divide estate disproportionately. The individual will first need to dissolve his HUF before bequeathing his estate to wife. Also, if the person has inherited an HUF or any assets; these need to be divided among sons, daughters and him equally, in accordance of the Hindi Succession Act. Inherited assets cannot be pass on as per an individual's wish.

The law, however, is not clear on whether the children of a married daughter can also become members or coparceners in her father's estate, like children of a son can. Lawyers say that as the daughter is married and her children become coparceners in her in-laws' HUF, they may not have the right to become coparceners in her father's estate.
Taking over as karta: Divi Dutta

One of the biggest advantages of having an HUF is that it is easy to setup and has various tax benefits. The membership to HUF is by birth and there is no prescribed limit on the number of members of an HUF. Moreover, since an HUF is a separate entity in the eyes of law, it has its own PAN Card and can thus split family income to promote tax saving. This not only makes it possible for the HUF to be taxed at a lower slab rate but also entitles it for various tax rebates and deductions for HUF account under Sections 80C, 88 and 80L of the Income Tax Act.

There is no formal appointment process for a Karta in a HUF. Karta is the eldest adult coparcener of a HUF who manages the affairs of an HUF. The Karta typically manages the bank account of the HUF and all assets and securities of the HUF are generally in the name of the Karta and/ or on behalf of the HUF. Statutory authorities may require a declaration from the other members of the HUF declaring the eldest coparcener as the Karta of the HUF. A new Karta is automatically appointed on the demise of the old Karta of a HUF.
 
In order to effect the change of name of Karta in the bank account of the HUF, banks generally require the death certificate of the old Karta along with a declaration from the surviving members declaring that the old Karta has expired and the new Karta is the eldest coparcener as on date. Further, for transmission of securities to the account of the new Karta from the account of the deceased Karta, the surviving members are required to make a joint application in the prescribed form along with a set of prescribed documents to the depository participant.

Divi Dutta, Partner, Shardul Amarchand Mangaldas