19 July 2024
Section 64 of the Income Tax Act deals with clubbing provisions, which are designed to prevent tax evasion by transferring income to family members in lower tax brackets. Let's address your questions based on the scenario you've described:
1. **Gift to HUF and HUF earns taxable interest**: - If a member of an HUF (Hindu Undivided Family) gives a gift in cash to the HUF, and the HUF earns taxable interest from this gift, the income (interest earned) would generally be considered as income of the HUF itself. - The clubbing provisions of Section 64 would typically **not** apply in this scenario because the income is earned by the HUF, not by the member directly. HUF is treated as a separate entity for tax purposes, and its income is assessed separately.
2. **Applicability of Section 64**: - Section 64 primarily applies in cases where income is transferred directly or indirectly to a spouse or a minor child. It includes provisions where income arising from assets transferred to a spouse or a minor child is clubbed with the income of the transferor (person making the transfer). - In the context of an HUF, if income is earned by the HUF from assets gifted by a member, the income is taxed in the hands of the HUF itself, not the member. Therefore, clubbing provisions related to spouses or minor children do not apply to an HUF scenario.
In summary, if a member of an HUF gifts cash to the HUF and the HUF earns taxable interest from it, the interest income would be assessed as income of the HUF. The clubbing provisions of Section 64 do not get attracted in this case because the income belongs to the HUF entity, not to the member individually.
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