Huf capital

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 July 2014 Hi,

I want to form HUF in my name (along with my wife). Following are my queries:

1. Can my mother who in individual tax payer. Can she (my mother) give gift to my HUF.

2. What is the maximum amount she can gift (without any tax either to my mother or to my HUF).

3. If my HUF earns interest (from FD or any other source) from that amount will it attract clubbing of income with my mother.

Querist : Anonymous

Querist : Anonymous (Querist)

23 July 2014 Please advise on above query .....

Querist : Anonymous

Querist : Anonymous (Querist)

23 July 2014 Please advise on above query .....

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 Forming an HUF (Hindu Undivided Family) and understanding the implications of receiving gifts and earning income involves navigating specific provisions under Indian tax laws. Here’s a detailed response to your queries:

### **1. Can My Mother Gift to My HUF?**

Yes, your mother can give a gift to your HUF.

**Gift from Mother to HUF:**
- **Legality:** Gifts from a mother to an HUF are permissible under Indian law. The gift must be documented properly, and the HUF should record it as a gift received in its accounts.

### **2. Maximum Amount That Can Be Gifted Without Tax Implications**

**Tax-Free Limit:**
- **Gift Tax Act (Pre-2005 Law):** Under the Gift Tax Act, which was abolished in 1998, gifts were subject to tax if they exceeded a certain limit. However, the act no longer applies as gift tax is now governed under the Income Tax Act.

**Income Tax Act (Post-2005 Law):**
- **Section 56(2)(x):** According to Section 56(2)(x) of the Income Tax Act, gifts received from relatives (including mother) are not subject to tax. This means:
- **Gifts from Relatives:** No upper limit applies if the gift is received from a relative defined under the Income Tax Act. Mother qualifies as a relative.
- **Tax Implications:** Gifts from your mother to the HUF are exempt from tax as long as they fall under the category of gifts from relatives.

### **3. Clubbing of Income from HUF with Mother's Income**

**Income Tax Implications:**
- **Clubbing of Income:** Income earned by the HUF from investments, such as interest from fixed deposits (FDs), is not subject to clubbing with the income of the person who made the gift.
- **Section 64:** This section deals with the clubbing of income and generally applies to income derived from assets transferred directly to another person, not to gifts made to an HUF.

**Income from HUF:**
- **Taxation:** The income earned by the HUF, such as interest on FD, is assessed as income of the HUF and taxed accordingly. It does not get clubbed with the income of your mother.

### **Summary of Key Points**

1. **Gift to HUF:**
- Your mother can gift to your HUF, and this is permissible under Indian tax laws.

2. **Tax-Free Gift Amount:**
- Gifts from relatives, including your mother, are exempt from tax under Section 56(2)(x) of the Income Tax Act. There is no specific upper limit for gifts from relatives.

3. **Clubbing of Income:**
- The income earned by the HUF, including interest from investments, will not be clubbed with your mother’s income. It is assessed separately under the HUF.

**Additional Recommendations:**

- **Documentation:** Ensure proper documentation of the gift transaction, including a gift deed if necessary, and maintain records for future reference.
- **Tax Filing:** File the income tax returns of the HUF accurately, including all sources of income, to ensure compliance.
- **Consult a Tax Professional:** For detailed advice tailored to your specific situation, especially if the HUF is involved in complex transactions or has multiple sources of income, consulting a tax advisor or chartered accountant is advisable.