Need help on HUF taxation and funding

[dhroovsharma]

Hi all,

I need your help with the below query.

I have a HUF. I am Karta of HUF. My wife is a member of HUF and I have 1 child as coparcener.

I am confused on funding the HUF.

As per the rule, if I (Karta) transfer the money (10 lakh) to HUF, and through that money, if HUF generates income, then that income is clubbed with me.

I also understand that if I give a loan to HUF with an interest rate, then the HUF income will not be clubbed with me.

Can member or coparcener transfer money to HUF? and whether the income from that money will be clubbed to a member or coparcener?

I need to understand who can give money to HUF that is not taxable for the sender.

I need to know what the other ways are to receive the money in HUF without clubbing.

Thank you!

[Quicko]

Hi @dhroovsharma,

We have covered the clubbing provisions for HUF in detail here and it can help you:

Ask me anything about HUF and its taxation

Hey @tallerballer, @anilsaxena @paekut, Addressing all the queries related to clubbing: 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. Gift…

If you have any further queries, please let us know.

[dhroovsharma]

Following query on the 2nd point.

Is there any limit for the HUF member to transfer the capital to HUF account to avoid taxation?

[Quicko]

Hey @dhroovsharma,

Gifts from members are exempted in the hands of HUF and there’s no such limit on the amount.

Hope this helps!

[Sudarshan_Prasad1]

Hi @Quicko

I have a wife and 2 adult children in my family. I am salaried in 30% bracket. Have no rental income. I want to create an HUF by moving my entire equity portfolio (shares) as a seed capital to HUF (by transfering shares from my demat to newly created HUF demat) and the capital gains/dividends from the shares will not attract clubbing provisions. Please confirm.

[Quicko]

Hi @Sudarshan_Prasad1,

Transferring any personal property (movable or immovable) which includes shares, to the HUF does attract the clubbing provisions. In the case specified by you, the income from the transferred shares will be clubbed in your hands.

[Sudarshan_Prasad1]

Hi @Quicko

What if the personal property (shares) is moved to the HUF at the time of HUF inception as the initial corpus? Will the clubbing provision still apply?