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What happens to the Demat Account of HUF on the death of Karta?

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Published Date: 24 Oct 2024Updated Date: 24 Oct 20246 mins readBy MOFSL
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Many families in India start small businesses along with their family members. Hence, this type of business needed a different status and the concept of Hindu Undivided Family emerged.

 

What is a Hindu Undivided Family?

A Hindu Undivided Family is a separate legal entity specific to Hindu family businesses in India. It follows the tradition of a joint family, which has members across generations.

Ideally, the eldest male member serves as the head or "Karta" of the HUF. The HUF holds assets that originate from ancestral property, gifts, the sale of family property, wills, or voluntary contributions by family members.

Who are the Members of a Hindu Undivided Family?

 

Members of an HUF can include all individuals in a particular family such as husbands, wives, children, their spouses, and grandchildren. The male members are referred to as coparceners, while the female members are known as members. Only coparceners have the right to demand the division of the HUF.

 

What happens in case the Karta passes away?

 

Upon the death of the Karta, the surviving members of the HUF can appoint the eldest surviving male as the new Karta. This transition ensures the continuity of the family’s legal and financial matters under the new leadership.

What happens to the Demat holdings if the Karta passes away?

 

​​​​​​​​​​​​​​The following steps outline how the securities in the deceased Karta’s account are managed :

 

1. Simple Transfer of securities​​​​​​​

 

The surviving members and coparceners, through the new Karta, must submit a joint application to the Depository Participant using the form specified in Annexure "O" along with the following documents:

● Certified copy of the death certificate of the deceased Karta, notarised.

●    A court order from a competent court authorising the transmission. 

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2. Transfer of securities when court order is unavailable

 

If the value of the securities does not exceed Rs 10 lakh, the DP may proceed based on:

●       Request for transfer in Annexure "O", signed by the new Karta.

●       Affidavit listing the surviving members of the HUF.

●     Letter of Indemnity in the prescribed format (Annexure "O") from the surviving members.

 

3. Transfer of securities if members raise objections

 

If any member objects the transmission, the securities can only be transferred after:

●       A Court Decree or a valid Deed of Partition is submitted.

 

4. Transfer of securities in case of a separation

 

In the case of partition or separation, the surviving members must provide:

●  A certified Settlement Deed, Deed of Partition, or Court Decree, duly stamped.

●Details of the individual members' beneficial owner accounts to facilitate the distribution of securities accordingly.

 

5. Final Transfer of Securities and Account Closure

●   Once the DP verifies the submitted documents, the balances will be transferred to the new Karta account or individual accounts (in case of partition).

● After completing the transfer, the DP closes the deceased Karta’s account.

 

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What is a partition of an HUF?

The partition of an HUF ends the status of a joint Hindu family and can of the following two types:

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●   Partial Partition: In a partial partition, only some members choose to withdraw from the HUF, while others continue as members. Alternatively, the partition may apply to specific properties, where only certain assets are divided, and the remaining assets stay within the HUF.

 

●  Complete Partition: A full partition occurs when all members exit the HUF, and all properties are divided among them. At this point, the HUF ceases to exist as a legal entity, and the joint ownership of its property ends.

 

What happens to movable assets?

 

Assets like Insurance, fixed deposits, and policies in the event of HUF partition can be assigned to specific coparceners as outlined in the partition deed.

 

Will a HUF be dissolved after the death of the Karta?

 

A HUF can be dissolved only by executing a partition deed among all the coparceners. Hindu law permits both partial and full partitions. Income Tax laws recognise only complete partitions to treat the HUF as dissolved. A partial partition means the HUF continues to exist as a taxable entity.

 

Concluding thoughts

 

​​​​​​​​​​​​​​A lot of Indians use the HUF as a way to save taxes as the income generated in this file is treated separately from that of an individual.

The HUF structure offers flexibility in the management of family businesses, inheritance, and tax planning. Managing an HUF is not similar to running other corporate businesses as it requires understanding the dynamic nature of coparcenary rights and partition rules.

 

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