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HUF Formation and Tax Implications for Family Income - Mihir's Advice

Mihir Tanna |961 Answers |Ask -Follow

Tax Expert - Answered on Sep 21, 2024

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Asked by Anonymous - Aug 01, 2024Hindi

Money

Hi Mihir, hope you are well. I want to create an HUF (Karta) with my wife + 2 minor daughters (members). The main purpose is to save tax by creating FDs in HUF. We want to have a good corpus there eventually (2 crore +) so that income generated by HUF can be used by us to cover our yearly expenses. I have a few questions. 1. If both me and my wife transfer some money (don't know what would be the best way - gift, loan or just transfer as initial capital) say 25 lakh each to HUF which we will then put in FD. Will the interest on this FD will be taxable in the hand of HUF or it will be clubbed with me and my wife's income. Both me and my wife are in 30% tax bracket. 2. What is the best (tax efficient) way to take out money from HUF and use it.

Ans: As money is contributed by member of HUF, income generated out of investment will be Income of HUF. Once money is invested in HUF, withdrawal is usually not allowed except in few circumstances

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Question by Dilipkumar - May 28, 2023Hindi

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Good morning Sir, I am Karta of HUF. Other members (coparcenors) are my two daughters and wife. Income of HUF is from agriculture and interest. My questions are (1) Whether all above members are eligible to receive tax free gift from HUF ? (2) Is it necessary to give same amount of gift to all members ? (3) Can HUF deposits amount to PPF account of wife and can HUF claim for 80CC benefit for that? (4) Can wife has equal rights in HUF as others ? I will be highly thankful to receive above answers.

Ans: Gift received by member from HUF is Income in the hands of Members, as gift received from HUF is not considered as relative (which is not an income).

Accordingly, question of giving same amount will not arise and if HUF deposit amount in PPF account, it will be considered as Income in the hands of member and member will not be able to claim deduction also.

All the members to HUF have equal rights in HUF.

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Question by Dilipkumar - Jun 02, 2023Hindi

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Sir, I am Karta of HUF. My two daughters and wife are other members. I have following questions. 1) Can HUF give any amount of tax free gift to any of above members or gift should be distributed equally? 2) Is wife possess equal rights as other members of HUF ? 3) Can HUF deposit amount to PPF account of wife and HUF can claim for 80 CC deduction for above amount? I will be highly thankful to you by receiving guidence.

Ans: No, any amount received by member from HUF will not be considered as gift for income tax purposes.

Further, wife can become member of HUF but can't be coparcener of HUF to get share on partition of HUF.

Amount contributed in PPF is eligible for deduction u/s 80C. However, HUF can not claim 80C for amount contributed for the account held in the name of member.

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Question by PRAVEEN - Oct 25, 2024Hindi

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Thanks for your reply sir. Understood that karta can donate any amount to huf but any income generated by that amount will be taxable in hands of karta. Then no use of gifting amount. Thats why my plan is to take gift from other persons upto max 3 lacs per annum and show it as income in itr. As basic exemption limit is 3 lacs, no tax to be paid. Like that in 2 to 3 year 10 lakhs corpus will be created. Then i can generate income by investing in stocks, fds

Ans: 01. You are justified in concluding that any amount donated by karta, will be subject to clubbing provisions u/s 64 of Income Tax Act.
02. Any gift from other sources (other than relative) is exempt up to a maximum of Rs.50,000.00 in a year. You may proceed in the way you have suggested.
Most welcome for any other clarifications. Thanks.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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