Taxation for HUFs | Is clubbing applicable

Income Tax Income from Business or Profession
21

HI,
I have recently created a HUF with my Dad, where I am karta (as per ITAT online ), and dad coparcener (my HUF DEED consist ONLY me and Dad )
For financial tax planning suggest safe ways to avoid clubbing provision and Tax Notices from below.

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Option 1: BRINGING RENTAL INCOME TO HUF
I am co-owner in a purchased office with my parents (during 2005, my age around 23 at that time), NOW, I want to bring in rental income to HUF without getting Clubbing provision.

Query 1. From the following which is safest way without getting IT NOTICE, or tell me best solution available with you.
1. Making a registered gift agreement by karta (doner) to huf (donee) without any consideration, so, will that get clubbing provision on earned or
2. making first LONG LEASE agreement between karta (landlord) and HUF (AS A TENANT) , (where 3000 rent paid by KARTA to HUF & In the second agreement, by way of sub tenancy or Leave & Licensing same office at 30000 license fees from licensee MR.ROHIT , so karta receives 3000 rent from huf, and huf receives 30000 license fees from its licensee? Here as HUF is receiving License fees and also paying rent to Karta so clubbing provisions will apply in such a case?. ) or
3. Karta makes will in favor of HUF, so inheritance is denied from karta’s side and SO DOES clubbing apply here.?

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Option 2. LOAN

To bring my investment in HUF without clubbing, Karta gives loan to HUF at 0.5 to 2% per year and huf makes investment , earns interest at approx 10 % per year

QUERY 2.
1. Does IT Dept allows 0.5 to 2% annual interest Income tax??
2. How much loan can be given to huf safely?
3. for this , is it Required to make a notarised LOAN agreement for IT Dept? And is this safe option?
4. How to disclose to income tax about transferred amount as loan?

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Option 3, GIFT

Any income from gift given by karta or coparrcener to HUF will bring clubbing provision so,
if,

QUERY 3
1 >>> My UNCLE’S SON , a BLOOD RELATIVE, BUT NOT MEMBER OF HUF , as was not included in HUF DEED., AND AS NOT MEMBER OF HUF he WONT GET CLUBBING, right?,
2. SO ANY GIFT FROM HIM OR DISTANT RELATIVES WHO ARE NON MEMBERS FATHER’S SIDE WILL BE TAX FREE to both ie. HUF and that relative doner??
3 . >> and DOES special OCCASION REQUIREd to validate GIFT?
most important >> 4. yearly how much gift from relatives and Loan from Karta to HUF should be transferred safely without getting Notice by IT Dept , in this HUF’s first commencement year?

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Option 4 , INHERITANCE

1. In  **ancestral property from my mother’s side** can i bring MY 33 % share+ additional 33 % share received as gift from my aunty?
2. **Which documents** (gift deed etc?) need to be prepared, where HUF will be mentioned as beneficiary ?    
3. is **MOTHER'S LINEAL side** property is allowed to be added in HUF as inheritance?

And

apart from above , in first commencement year of HUF, SAFELY HOW I can RAISE HUF CAPITAL AND TRANSFER RENT AND FUNDS WITHOUT involving CLUBBING PROVISION and IT NOTICE ?
(Our income includes from rent of co-owned property and interest from investments)

Thanks and kind regards,

ritesh shah

22

Hi Ritesh,

The rental income received by you cannot be transferred to HUF without the application of clubbing provisions.

Your queries seem to be more related to personalized tax planning.

You can book a MEET where a dedicated tax expert can connect with you over a video call, understand your queries, and suggest you the best possible solutions.

23

During FY 2022-23, HUF has borrowed shares from Mother and Father of Karta. The HUF is not supposed to sell those shares, but are to be returned back to Father and Mother at a later date. Accordingly, Based on Delivery Instruction Slip issued by Father and Mother the shares have moved from the demat A/c of Mother and Father to the Demat A/c of the HUF. The movement of shares is appearing in the Annual Information Statement (AIS) of Father and Mother as OFF MARKET DEBIT TRANSACTION and in the AIS of HUF as OFF MARKET CREDIT TRANSACTION. The HUF has pledged these shares and obtained margin facility and done trading in derivatives. But the profits are nominal and hence does not want to continue business further and wants to close the business and return back the shares in FY 2023-24 to the original owners being Father and Mother.

Whether there will be income tax on father and mother as transfer for shares moved to demat a/c of HUF?
Whether there will be income tax on HUF for receipt of shares without consideration?
will there be income tax again while returning the shares back to original owners.

24

Hi @kutekiru

Receipt of shares without any consideration will be treated as a gift.

The transfer of shares from father/mother to HUF will be treated as a gift income for HUF and HUF will be liable to pay tax on the same if the value exceeds ₹50,000.

Similarly, when the shares are transferred back to the father/mother of the Karta, it’ll be treated as a gift income for them, and will be liable to pay tax on the same if the value exceeds ₹50,000.

Hope this helps.

25

Thanks for your reply.
But, i believe my 1st question remains un answered.
Whether there will be income tax on father and mother as transfer, for shares moved to Demat a/c of HUF?

26

Hi @kutekiru

Taxability:

  1. In the hands of the Father/Mother of Karta: When the Father/Mother of Karta transfers shares to the HUF account, it will be taxed as capital gains under the head “Income from Capital Gains”.

  2. In the hands of HUF: When the HUF receives shares from the Father/Mother of the Karta, it will be a gift as it is received without/inadequate consideration and will be taxed under the head “Income from Other Sources” if the amount exceeds ₹50,000.

27

Mr. G has a HUF. He is the karta. He has a wife W, one daughter D and one son S. Daughter has 1 son and 1 son. Son has 2 sons.
Mr. G is now 80 years old and wants partition of his HUF.

How,and in what proportion will the assets be divided? What will be the share of each?

28

Hi @RachnaG

You can read about the Partition of HUF under Income Tax Act - Learn by Quicko.

Hope this helps.

29

My father is 80 years old and he has a self acquired property in his name. He has two children - my elder sister and me. He wants to leave the property to me for future and wants to write a will to that effect. The property is rented out and receives rental income. Inorder to minimize my tax impact,

  1. Can i ask my father to bequeath the property in the will to my HUF (consisting of me, my wife and 2 children) instead of to me directly?

  2. Given the property is bequeathed directly to the huf, i am assuming there will be no clubbing provisions to my income?

30

Hi @Kart43

Here are the answers to your queries.

  1. Yes, you can ask your father to bequeath the property in the will to your HUF.
  2. The clubbing provisions shall not apply to your individual return. The rental income shall be taxable in the hands of the HUF.
31

Can I open an HUF account with salaried income (only one source of income) and housewife, unmarried Daughter? However, I am investing on some mutual funds on my Wife (Housewife) name and there are some capital gains on the investment.

32

Hi @Palanisamy_K

Opening a HUF account is not dependend on the source of Income. The HUF can be formed of family members who are lineal descendants of a common ancestor like parents, children, grandchildren, and so on, and have a common property that they collectively own.

The income earned by individual members of the HUF is reported under their respective ITRs. The HUF itself may have income from the joint family property, which is reported separately under the HUF’s Income Tax Return.

In the scenario you mentioned, your salaried income would be reported under your individual ITR, and the income earned by your housewife and daughter would also be reported under their respective ITRs.

33

HUF profession business is share market trading .

HUF is paying salary to karta . and claiming it as business expense from the profit .

HUF is paying property Maintenace , electricity etc as the premises and the electricity is used for the business . so claiming these expenses etc as business expenses from the profit …

HUF is doing all the transactions from the savings bank account and not from the current bank account !

QUERY :

Is it ok to do all the transactions with the savings bank account ?
or is there any comparative advantage in using the current bank account ?

@Sakshi_Shah1
@Bharti_Vasvani
@Shrutika_Shah
@Muskan_Balar
@CA_Niyati_Mistry

34

Hello @HIREiN

As per RBI guidelines, Savings Bank Account shall not be used for commercial or business transactions. It is always advisable to use Current Bank Account as it does not have transaction limit making it more convenient for business and commercial transaction.

35

i do not have much transactions , so is it ok if i use the savings bank account ?

what does the income tax rule say : is it ok if i use the savings bank account of the HUF ?

36

Hello @HIREiN

There’s no specific rule under the Income Tax Act. But, it is always advisable to use Current Bank Account for all the business related transactions irrespective of number.

37

as you said : there is no rule but advisable to use current account rather than savings account .

THE itch is :

banks don’t pay any interest on the money lying with the current account . and Banks levy charges , folio account maintenance fees etc on the current account .

BUT . in the savings account ; banks don’t levy any such charges . and banks also do pay interest on the money lying with the savings account .

then ; why would i open the current account for HUF trading ? and there is no rule or law prohibiting me from operating from savings bank account !
am i right ?

38

Hello @HIREiN

Yeah, there is no such rule or prohibition but to better manage the transactions and due to no limit on number of transactions it is recommended to use current bank account.

39

Hello,

My father is no more, we sold one of the property that was in his name. Recently we formed an HUF with my Mother as karta, and we all sibling as co-parceners. Can we bring money received from sell proceedings into our HUF considering the property belonged to our father and we all are direct descendants?

40

Hey @SANKET_POSAM,

The legal heir/nominee of the property will be liable to pay tax on the capital gains that will arise from the sale of the property. Moreover yes, the members can bring in capital from sale of such assets to the HUF.

Hope this helps!

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