We created a YouTube video explaining all about Hindu Undivided Family, more commonly known as an HUF. Check it out here!
HUF or Hindu Undivided Family is a separate legal entity formed by members of a single family. It can earn income, own property, make investments and even run a business. Hence, it can be an effective tool to plan your finances and even optimise your taxes.
We do understand that understanding the framework and taxation around HUF can be confusing and hence, we will answer all your queries here!
Clubbing provision needs clarification, in which cases it is applicable or not applicable. If members directly transferring cash in HUF and then generating trading profit is it applicable?
Transfer of cash to HUF can be treated as a loan if it will be repaid, and if not, then it will be treated as a gift. Clubbing provisions are not applicable in case of gifts from members. However, if the members transfer any personal movable/immovable property to the HUF, any income generated from the property will be clubbed.
Thanks for the response, so if income from Gifts are clubbed and if you don’t have any ansestor property is there any other way to build corpus for HUF?
What will be the possible implications for existing HUFs in case Uniform civil code (UCC) law comes in future as there is growing talk about it from many years?
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.
Hope this clarifies the queries. We have also corrected the previous response accordingly.
Yes, you are correct, while a will can be created at any time, it will be executed only after demise. You can refer to our latest response for clarification on clubbing provisions.
Since the Uniform Civil Code Bill is not available for public consumption yet, hence we request you to wait till the law is enacted. After that only we will be able to draw a conclusion on the impacts it will have on HUF.
Forming an HUF does not depend on your Capital Gains. You can analyse your total income, family properties and tax implications on them and if in case forming HUF helps you with succession planning and optimizing your taxes, you can opt for the same.
Step 1: Create an HUF deed. It is a written formal document on stamp paper stating the names of Karta and other members of the family.
Step 2: Apply for PAN
Step 3: Open Bank Account
You will have to get in touch with a lawyer to create the deed. Further, you will have to apply for the PAN online.
We do help with PAN applications for HUF. You can book a MEET from the following link: Book a MEET.
So does that mean that I can transfer my and my wife’s capital directly to the new HUF ( and then to its Demat), which is 50+ lakhs without any tax implications?
I want to do this as currently trading in 2 different accounts I am paying a lot of brokerage which can be halved if I trade in just one (HUF’s).
Yes, you can either pool in this capital while forming the HUF or transfer the same as a gift.
However, as brokerage is charged on a trade basis, you will not be able to benefit in regards to brokerage charges except if you reduce the amount of trades.
Yes, idea is that number of trades will be halved if done in a single account.
What do you mean by pool exactly?
I was thinking to sell all shares in both accounts, get the money in bank and directly transfer all of it in HUF’s acccount [and then to its demat]. Won’t showing this much money as gift create problems?
