The concept of Hindu undivided family (HUF) came from the Hindu law which consists of all individuals who are common ancestor from lineal ascendants, co-parceners form a common family group and also comprise of unmarried daughters.
A HUF is not formed by virtue of any legal contract but having a common ancestor is the only pre-requisite for the formation of a HUF. As per Hindu law, a HUF can be formed with the inclusion of as minimum as two members where a person marries and starts a family of his own.
In the legal system HUF, holds separate existence from its individual members in terms of legal rights and benefits incorporated in different laws for HUF.
HUF is governed by the head of the family called the Karta who manages all its affairs and takes the decision on behalf of the members of the HUF. In the Income Tax laws, a HUF is considered as another member of the family, where tax rules as applicable on an individual taxpayer equally apply on HUF i.e, HUF is treated as a distinct entity for tax purposes.
Just like an individual taxpayer, members of HUF are also permitted to exchange tax-free gifts among themselves subject to few limitations.
Below is a comprehensive guide on
“How gifts are taxed when exchanged with or by HUF?”
Classification of Gifts
In the Income Tax Act, 1961 gifts in any form cash or movable or immovable property including gold, jewelry or anything can be given or received.
For Cash: If any cash gift is received under the provisions of Income Tax, it will be exempted up to a maximum limit of Rs 50,000/- which has been prescribed under Section 56(2) of IT Act, 1961. The cash gift limit is applicable for both relatives and nonrelatives any CASH gifts the stated value is subject to tax.
For Immovable Property: Taxation of immovable property gifts shall be considered on the basis of the stamp duty value of the property, where if the stamp duty value exceeds Rs 50,000/- it shall be charged to Income Tax, else in another case it will be exempted.
For Movable Property: The scope of taxability of all other gifts including movable property gifts like gold, car, painting etc .are exempted from tax if the fair market is within or upto Rs 50,000/- and if it exceeds Rs-50,000/- then the whole of the aggregate fair market value is taxable
Taxability of gifts
The Income Tax law provides a substantial relief in tax provisions for members of HUF and other persons receiving and giving gifts to HUF.
Gifts to HUF from its Members
Gifts received by HUF from its members are exempted from Income Tax under Section 56(2)(vii) of the act. As per Hindu law, HUF is inclusive of all family members from a common ancestor, hence the limit of 50,000/- does not apply on HUF, excluding cash gift of more than Rs 50,000/-.
Gifts to Members from HUF
Gifts permitted by HUF to its members satisfying to the conditions of Section 10(2) are exempt from Income Tax in the hands of recipients. It shall be taxable only if the value of the gift is above the threshold limit provided in the Section 56(2)(vii).
If any property is gifted by any member to HUF it will be tax free, but any income from such property will be deemed to be considered as income of the member as per clubbing provisions of Income tax (Section 64).
Gifts to/by HUF to/by Non-Members of HUF
For individuals being non-member of HUF, transfer of gifts will be considered same as it is considered in case of gift received by a person from any non-relative, cash gifts above Rs 50,000/- immovable property gifts with stamp value above
Rs 50,000/- and movable property without consideration with fair market value above Rs 50,000/- all shall be held taxable in the hands of recipient even if exchanged with HUF.
FAQ on Gifts to/from HUF
Q1. Can the ancestral property held by Karta also be treated as the property of HUF?
- A. Property specifically gifted by forming a will by the ancestors in name of Karta cannot be included in the capital of HUF as per Income tax rules. While if no will is made, it will be considered as property of HUF which can further be gifted to any member of HUF.
Q2. Whether gifts received by HUF are to be reported in Income Tax Return or not?
- Disclosure of gifts in Income Tax Return is voluntary on the taxpayer, but gifts given in accordance to Section 10(2), reducing or affecting the tax liability of taxpayer should be reported while filling Income tax return.
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