Ask me anything about HUF and its taxation

AMA (Ask Me Anything)
84

Hey @uday.chande,

The following conclusions can be drawn from the provisions of clubbing and gifts according to the Income Tax Act.

  • An HUF can build a corpus at the time of incorporation. Any capital raised and contributed at the time of incorporation is treated as HUF’s capital and clubbing provisions shall not apply.
  • After the HUF is formed, the members can pool capital in the HUF and transfer capital as a gift. Gifts from members are exempt in the hands of the HUF and the HUF can use this capital to generate income, clubbing will not be applicable here.
  • However, if the members transfer any personal movable/immovable property to the HUF, any income generated from the property will be clubbed. Here, movable property would include shares as well.
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85

Okay thank you, this was best explanation till now. Should have highlighted capital and moveable immovable property clearly.

By property, you mean just real estate or all non-cash assets like transferring of stocks and MFs?

What if I gift shares from personal to HUF demat account? Is it capital or transfer of movable property?

86

Hey @tallerballer,

Property includes both movable (like shares) and immovable (like real estate) property. Hence, if you gift shares to the HUF, clubbing provisions shall apply on the income generated.

However, when such income is reinvested by the HUF, the profits will not be clubbed and the HUF will be liable to pay taxes on the same.

Hope this clarifies.

1 Like
87

If my wife and I are forming an HUF -

  1. My wife is non-earning
  2. At the time of the formation of HUF I am transferring property to HUF

In the above case will income be clubbed?

88

Hey @Harish_Chandra,

If you transfer any personal property to the HUF, clubbing provisions will be applicable.