My father has given me some money. Now, i want to transfer that money to my HUF( i am Karta) and create Fixed Deposits. My queries are:
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Can i give interest free loan to my HUF for indefinite period and create Fixed Deposits from that money?
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Will the interest from HUF FDs will be clubbed to my income or they will be separately taxed?
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Giving an Interest-Free Loan to the HUF
Yes, you can give an interest-free loan to your HUF for an indefinite period. However, there are a few points to keep in mind:
- Document the Loan: It is important to execute a simple loan agreement to clearly state that the transfer is an interest-free loan and not a gift. This will help avoid confusion with the income-tax authorities.
- No Gift Implications: If it’s treated as a gift to the HUF, any income generated (e.g., interest on FDs) might attract clubbing provisions.
- Taxation of Interest Earned on HUF Fixed Deposits
The interest income from FDs made by the HUF will generally be taxable in the hands of the HUF as a separate entity, provided the following conditions are met:
(a) If it’s a Loan:
- When you provide an interest-free loan to your HUF, the income earned on the invested amount (e.g., FD interest) is not clubbed with your personal income. The HUF will be taxed as a separate entity.
- The HUF will file its own income tax return and pay taxes on the interest income as per the applicable slab rates for HUFs.
(b) If it’s a Gift:
- If the money is treated as a gift from you to the HUF, then Section 64(2) of the Income Tax Act applies, and any income arising from the gifted amount will be clubbed with your personal income.
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@Diksha_Bang where can i show this amount is loan not gift in ITR
If you income is more than 50L only then you will have to disclose assets and laibilities or else it is not required to be disclosed.