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Income tax: Can a member make gift to the HUF without any tax liability?

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Can a karta or a coparceners /members make gift to the HUF without any limit and without any tax liability for HUF? I understand that any gift received by HUF in excess of total amount Rs. 50000 is treated as income and taxed in the hands of the HUF. Can the amount be given as capital instead of Gift to avoid taxation problems? (Name withheld)

The threshold of Rs. 50,000/- in aggregate applies to gifts received by an individual or an HUF during one financial year and where the aggregate of the gifts received during the year exceeds this threshold of Rs. 50,000/- whole of the amount becomes taxable in the hands of the recipient. However, gifts received from certain specified relatives are outside purview of this provision. For HUF its members are treated as its specified relative.

So any member of the HUF including Karta can make gift of any amount without any limit to the HUF and there are no tax implications either for the HUF or for the member making such a gift. However, the income which accrues to the HUF on the gift made by the member is subject to clubbing provisions and such income will continue to be clubbed and taxed in the hands of the member making the gift. Please note the clubbing will apply only in respect of the income accruing to the asset gifted but will not apply on the income earned on reinvestment of income already clubbed in the hands of the member. The clubbing will apply till the HUF is fully partitioned and even then the income in respect of share of the asset transferred allotted to the spouse of such member will be clubbed in his/her hands even after partition.

The question of a member giving it as capital does not arise as an HUF is not a partnership firm and the members are not partners of the HUF. This can only be done in the case of partnership where a partner can contribute towards capital of the partnership firm. This amount can be given as loan to the HUF on which interest can be charged. If no interest is charged the income arising on such money can still be clubbed under the provisions of section 60 of Income Tax Act.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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