Forming HUF and its taxation

Income Tax
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1

Here are some of my doubts regarding Taxation of HUF -

  1. As per clubbing rules, if any member transfer asset to HUF, income earned from the said asset is to be clubbed to the transferor.
    If at the time of formation Karta along with members transfer let’s say 2Lacs rupees (not ancestral) and invest in shares and earn Capital gains. Will this be clubbed to the income of transferor of money ?

  2. If income generated from the funds accumulated at the time of formation of HUF is not subject to the clubbing rules. Will any further gift in form of money be liable for clubbing rules ?

  3. If a third party give as a gift of upto Rs 50,000 in form of money. Is there any tax implication or disclosure required in ITR ?

  4. I want to save my STCG as - 2.5Lacs Basic Exemption limit available in HUF and 12,500 87A Rebate available. So approx 325000 STCG will attract 0 Tax. Is it okay to do so by forming HUF ?

2

Hi @paarvvv,

Any money pooled in at the time of formation of HUF is considered HUF’s capital and clubbing provisions will not apply here.

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.

If the amount is above ₹50,000 it’ll become taxable, if less than ₹50,000 you can disclose it in exempt income while filing the ITR.

3

In above mentioned point 2, it is mentioned that if Members transfer any personal movable/immovable property to HUF, any income generated from such will be clubbed.

Will cash transfer to HUF be considered in this ? Will you please mention Movable properties example here to detail.

4

Hi @paarvvv,

As per our understanding movable properties includes things like shares and securities, not cash.

But, experts do have different views on this matter and hence, it is always advisable to take a second opinion.

5

So according to you if karta added 5 lakh in huf as gift and later he huf made FD using that interest on miney is taxable in hands of huf not karta, right?

6

Yes, as per our understanding, clubbing will not be applicable.

7

@ Surbhi_Pal,
“Any money pooled in at the time of formation of HUF is considered HUF’s capital and clubbing provisions will not apply here”
which time period is called as formation of HUF? I have just created HUF pan now and yet open saving bank account against HUF pan…
like 1 yr form HUF pan creation is call as “time of formation of HUF” or for saving bank account opening date to some time period… or first transaction or first 2-3 transctions are called formation of HUF…

“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.”

how to pool capitals?
nothing is coming from ansestral…
one can not transfer movable/immovable property to the HUF because you said clubbing will happen…
then is the only option remains to deposit the cheque from member’s personal bank account to the HUF bank account and call it as a gift?? please confirm…
@ Surbhi_Pal mam please reply .