 "wealth management, family office")
The Delhi High Court has upheld the ruling that a woman can be the Karta of a Hindu Undivided Family (HUF), citing Section 6 of the Hindu Succession Act. Says Bharat Chugh, Supreme Court advocate and former judge: “This judgement represents a significant departure from traditional Hindu law, and promotes gender equality.”
Traditionally, only the eldest male family member could become the Karta of a HUF, reflecting patriarchal standards. Chugh adds that this judgement overturns these long-standing norms.
Far-reaching impact
This decision is expected to have a far-reaching impact. Says Aakanksha Nehra, partner, PSL Advocates & Solicitors: “Now women who are the eldest coparcener in a joint family can also freely get HUFs registered with themselves as Karta.”
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A coparcener can demand the division of joint property and receive a portion of it upon inheritance. Daughters of coparceners now have the right to a share in the joint family property, regardless of their marital status. The above ruling is a turning point for gender equality
within HUFs.
“The judgement clarifies that a woman’s legal right to be a Karta cannot be taken away from her even if a male coparcener has been the HUF’s official correspondent or has acted as the manager of its property at some point,” says Bhavya Sriram, partner, JSA Advocates & Solicitors.
How does a HUF work?
A HUF is a unique form of organisation under Hindu law which operates on the principle that each Hindu family is a joint family.
Says Naveen Wadhwa, deputy general manager, Taxmann: “It is a family of individuals who are lineal descendants of a common ancestor.” It includes all members of a family related by blood or marriage.
A HUF can own and hold property. It has its own PAN card and files a separate tax return. “A HUF is treated as a separate person under Section 2(31) of the Income-Tax (I-T) Act,” adds Wadhwa.
HUF can exist in perpetuity
A HUF can exist in perpetually. Says Nandini Acharya, associate, TAS Law: “The next eldest member of the family becomes the Karta on the death of the earlier Karta.”
Adopted children can also become members.
Adds Acharya: “All the members have limited liability, i.e., they are liable only up to their share of property or business. The Karta, however, has unlimited liability.”
Scope for disputes
One significant downside of a HUF is restricted freedom as the Karta has all the powers to make decisions.
Says Ankit Jain, partner, Ved Jain & Associates: “There can be disputes within the family over asset distribution since no specific order or share is defined.”
Save tax through HUF
A HUF is treated as a separate entity. Says Wadhwa: “It files returns, pays taxes, and is assessed separately from its members.”
It is taxed on slab rate basis, as is applicable to individual assessees. Says Rajarshi Dasgupta, executive director and national head (tax), AQUILAW: “Since a HUF is assessed and taxed separately from its members, deductions under Chapter VIA (such as Section 80C) are available while calculating its taxable income. A HUF can also use its members’ life and health insurance policies to avail of tax benefits.”
Jain adds that a HUF can lead to tax savings of about Rs 2.5 lakh per year, and in some cases, even more.
By forming an HUF, you create another assessee, with whom you can distribute your income and savings and thereby save income tax. “For a family, the rental income, income from other sources like ancestral property can be carved out in the name of the HUF to achieve substantial savings in income tax,” says Dasgupta. A HUF can also claim multiple deductions.
“It can avail tax benefits on principal and interest repayment on home loan,” says Achraya.
It can also claim a deduction under Section 80D on the premium paid for a health insurance policy that covers members of the HUF.
A HUF can also extend loans to its members based on agreed terms and conditions.
