Consider a scenario where in I form an HUF for my family and, me and my wife contribute say 1 lakh each as a capital to HUF. I understand the clubbing provisions will come into effect. Now say those 2 lakh earns 1 lakh and gets reinvested and earns another 1 lakh(i.e. 3 lakh earning 1 lakh). Now from income tax point of view, this profit of 1 lakh is taxable in the hands of Me, My wife and HUF equally. Is my understanding correct? If yes, is it the same applicable to NRI families?
My grandfather-in-law (80 year old) has an HUF account in which he is the Karta and his wife and daughter-in-law are the only other members (his son passed away last year). In case something were to happen to him, who can now become the Karta of this HUF? I want to be prepared for this eventuality in advance and take actions now in case this creates complications later. Can you please advice on who can become the Karta after him? Also, what sort of documentation would be required in advance for this?
As you are a member of the HUF, any shares that you transfer to the HUF in the form of a gift will not be taxable in the hands of the HUF. However, when the shares are sold, the capital gains will be clubbed with your income.
When an HUF is formed, the members can pool capital in the HUF and transfer money 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. You can provide loans to the HUF as well, but in that case It is not ideally recommended to give interest-free loans. You can charge a minimum interest as prescribed by the RBI.