I understand the tax advantages of having an HUF account. But, I am confused about how to legally transfer funds to the account.
If I transfer funds as gift or interest free loan, it seems the income generated from that is clubbed with my income anyway. So, no tax advantage!!
Can anyone explain how to leverage the tax benefits of an HUF account?
Interested in the same. Would be interesting to see if creating new HUF makes much sense.
All married Hindu males are eligible to form a HUF . The Gifts and inheritance is what makes the core of the HUF . The HUF will consist of the Karta and other Co parceners . The DOB of the HUF is your wedding day.
I don’t think the income is clubbed as your income. All HUF members can transfer funds to HUF as interest free loan and then HUF can generate its own income out of it. That will remain HUF income and will not be clubbed in the income of the member. I have been operating it for many years now. Had similar queries in the beginning which were sorted out by my CA.
You can consult your CA/Financial advisor before taking a call.
Do not do such things to save tax. HUF is taxed at 30% tax bracket.
As per my understanding any income generated on gift will be taxed as the income of whoever made the gift.
I am also intrested in knowing more about the same.
As of now i think we can give loan to Huf by Karta or Member at a reasonable intrest rate after that the income generated from that loan amount will not be clubed in Lender’s income.
In case of gifts upto 50k without consederation are tax free under section 56 of income tax in one year above 50k it will be charged at normal slab rates. Once the Huf pay tax on these gifts above 50k the income generated on the gift amount will not be clubed in future.
As per my understanding, mostly HUF has real estate as main assets (by way of inheritance) then that generates rental income and then Karta can do many things with this income. Thanks!
The relevant section of Income tax for gifts is section 56(2) and for clubbing of income is section 64. Though section 64 does not mention huf.
Income upto 7 lac is tax free. So you can create income in HUF . Ancestor property can be moved to HUF and any rental income from that can be used to create base.
Also shares / gold from Inheritance can be moved to HUF .
Start any business in name of HUF . If you are purely a salaried person / equity investor HUF may not be very menaingful apart from saving a few 1000,s in tax at base rate. Bcoz equity taxation eventually is same
It.helps only when u have a rental income from property or f.d income which
Apart from rental income and fd interest, HUF may also be useful if you are receiving hefty dividend every year. Dividend is taxed at slab rates.
A good introductory video on HUF
The key question remains about the source of funds for the HUF, if husband and wife are both working can they transfer post tax funds to the HUF for the HUF to invest in property or stocks ? Will those earnings be then clubbed with them or stay separate as the HUF’s earnings?
AFAIK, any funds remitted by karta or members of HUF are gifts from relatives (of HUF) hence the funds in itself are not liable to taxes. However any income accruing on the same shall be clubbed in hands of transferor. However, for HUF, any person other than the karta or members isn’t a relative and hence any gifts received from them up to 50k are tax free without clubbing provisions and above 50k shall be Taxable under income from other sources at Slab rates applicable to huf without clubbing provisions.
