Ask me anything about HUF and its taxation

AMA (Ask Me Anything)
43

Can HUF help save income tax if 1 member out of 4 is working? Sort of having pooled income for HUF members and therefore reducing income taxe as only 1 out of 4 is earning?

44

Hi @Quicko , thank you for the video, quite helpful. A couple of queries:

  1. How to fund capital in HUF? Can I transfer into the HUF from my salary after paying tax, would it be taxable again? (from the conversation above seems that If I gift to HUF then it won’t be clubbed, can you confirm?)
    Also, how do I classify it as gifting and not a personal asset for HUF, is that something I need to do when filing an ITR for HUF or create a gift deed as well?

  2. For PAN, I understand an affidavit is necessary, is a deed also necessary? If so, in the meet session, does your team help with that?

  3. Are gifts from members of HUF taxable or not?

  4. Can a HUF disproportionately share the income/fund/profits of the HUF (whatever be the source) at any frequency with one of its members/co-parcener?
    If so, then is it taxable in the hands of the co-parcener or can HUF file taxes and pay the taxes and then transfer the money to the co-parcener or member?
    Does, there need to be a mention of the profit/fund sharing in the deed or someplace else?

Would appreciate the revert to the above queries, thanks.

45

Hey @Deus12,

As mentioned in a previous reply,

  • 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.

Moreover, gifts from members are not taxable in the hands of HUF.

With regard to the other queries,

For an HUF Deed, you can connect to any advocate or firm of advocates because the deed will cover different aspects with regard to your family assets, distribution of Income etc. It is not something common for all. Thus, based on the affidavit, we can help you with the PAN application of HUF.

The income of HUF is taxed in the hands of HUF and chargeable at applicable rates. HUF can pay remuneration to Karta and its members and claim that as a deduction but the same will be taxable in the hands of Individual members. If any income is distributed before the partition of HUF, profits can be distributed amongst the members as mentioned in the HUF deed.

Hope this clarifies.

46

Hi @Quicko ,

Thank you for the response, quite helpful. Just a couple of clarifications:

  1. If a member/co-parcener gifts an amount to the HUF, are there any general regulatory practices to keep in mind? Does one need to keep a gift deed?
  2. Is the deed necessary while applying for Pan for HUF or we can apply with just an affidavit?
  3. If HUF pays taxes as per the applicable slab on the profit earned and then remunerates the fund back to member/co-parcener as a gift, then would that be taxed again in the hands of members of the HUF?
    (the question is: there a way for HUF to pay/remunerate back to the members of the HUF in such a way that there is no additional taxation applicable in the hands of the members?) (avoiding double taxation)
  4. In addition to above, if HUF gifts some amount to its members then would that also be taxable in hands of the members?

Thank you.

47

Hi @Quicko

Can HUF help save income tax if 1 member out of 4 is working? Sort of having pooled income for HUF members and therefore reducing income taxe as only 1 out of 4 is earning?

48

Hey @Shrey_Sharma,

HUF can help you with tax planning in some cases. However, in your case, if only one person is earning, the income will be transferred after taxation and hence, the tax liability in both cases would be the same.

49

Hey @Deus12,

With regard to your queries,

  1. The gift deed is not mandatory. However, it is always recommended to make one for easier compliance.
  2. You can just apply with an affidavit. Again, it is advised to make a deed to help during partition.
  3. Gifts received from members are not taxable in the hands of HUF. Now, in the case of gifts received by a member from HUF, there’s still ambiguity as the income tax has not clarified whether a HUF is a relative for members. However, assuming that an HUF is just a group of relatives, gifts received must be exempt in hands of member.

Hope this clarifes.

1 Like
50

hey @Quicko
if i transfer some capital to my HUF and i combine it with some other capital (already in HUF) and i invest in direct equity (stocks/shares) and over the years i make capital gains + (+ im guessing some divident gains)

Does clubbing apply

  1. if it is a gift
  2. its is a loan

How does taxes work for it ?

Does this change if it is a equity MF or PMS ?
If loan what paperwork do i need ?

51

Your HUF will have a separate ITR right. It will come under that.

52

would clubbing apply since i gifted the capital to buy the equity

53

Hey,

This should answer your query.

You can also give a loan and in that case a loan agreement would be required.

54

Can the Karta remove a daughter from the HUF if there has been a feud and she resides separately?
Also, what are the provisions for winding up. If I hold shares and MF in huf name what would the implications be.

55

that’s more of legal, not related to tax. Lawyer or Google would be better

Every member has to get equal shares

1 Like
56

Hey @mananbparekh,

The HUF can only be dissolved after the partition of the assets.

1 Like
57

I will start trading in FNO with 2 lakh capital, and after some months, I will add 10 lakh capital. Do I have to open a current account, or can I do it through a savings account? Lastly, for trading profit, do I pay tax quarterly or annually?"

58

Thanks you

59

Okay. Thanks

60

@Quicko Can we distribute profit every year to family members ?

61

Hey,

Yes, the profits can be distributed.

62

Team @Quicko,

Is it advisable for a HUF (Karta) to trade in F&O? For context, I understand investments done via HUF should be okay, but in the case of F&O trading it is specifically the Karta who would be trading, and can the income tax classify it as trading done by Karta and then apply clubbing of profits in the hands of Karta’s personal income?

Have you seen/observed such cases/instances by the income tax in the past?
Would it be advisable/okay to trade in F&O via a HUF?

Thanks.