Ask me anything about HUF and its taxation

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.

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?

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.

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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?

Hey @Harish_Chandra,

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

I am a salaried person (Ccentral Govt) and opening a HUF account just for purpose of investing in shares. Members would be karta(husband), wife and 2 childrens.
1.Can i transfer any amount of money from my savings account to HUF account and if needed transfer back to Salary account anytime (irrespective of financial year ending)? Or else i need to transfer back the amount from HUF to personal savings account before Financial Year end.
2. Do i need to maintain any accounts for this purpose (i.e. transfer of amount between HUF and Savings account) ? or else if at all any income is generated then its purely from IPO market so no need to worry much about taxation bcoz at last i need to pay only LTCG and STCG for HUF account or salaried account.
3, Zerodha has a feature to gifting of shares, then can i gift shares from my personal demat account to HUF demat account and then sell shares in HUF for getting benefit of lower tax slab rate? or else overall it wont affect much at LTCG/STCG slab is fixed at 10% and 15%
4. If i transfer amount from Salary account to HUF account , whether it can be used for purchasing shares from HUF account ?
5. Is it compulsary to include children in HUF or else HUF can be formed just by Husband and Wife also?
6. If i create a HUF account with my daughters, then in future whether my personal assets can be claimed by my daughters? i.e. not the assets mentioned in HUF , but say shares held in my personal account.
7. Salaried person (Central Govt employee) can also create a HUF account without much complications?
8. Money can be transfered from wife’s or children savings account to HUF account and later transfer them back to respective accounts ?

Can you please explain what is meant by Clubbing of income? Suppose i transfer/gift shares worth 10L from personal demat to HUF demat account and profit generated by sale of sale of shares in HUF account is 3L. Then how much income will be shown in personal account and HUF account during filling of IT returns? will be shown as 1.5L in both accounts or else something?