Request for Assistance in Transferring Capital and Income to HUF tax planning

This query is : Resolved

ritesh shah (Querist)
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02 May 2023 HI,
I have recently created a HUF with my Dad, where I am karta (as per ITAT online ), and dad coparcener (my HUF DEED consist ONLY me and Dad )
For financial tax planning suggest safe ways to avoid clubbing provision and Tax Notices from below.

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Option 1: BRINGING RENTAL INCOME TO HUF
I am co-owner in a purchased office with my parents (during 2005, my age around 23 at that time), NOW, I want to bring in rental income to HUF without getting Clubbing provision.

> Query 1. From the following which is safest way without getting IT NOTICE, or tell me best solution available with you.
1. Making a registered gift agreement by karta (doner) to huf (donee) without any consideration, so, will that get clubbing provision on earned   or
2. making first LONG LEASE agreement between karta (landlord) and HUF (AS A TENANT) , (where 3000 rent paid by KARTA to HUF &   In the second agreement, by way of sub tenancy or Leave & Licensing same office at 30000 license fees from licensee MR.ROHIT , so karta receives 3000 rent from huf, and huf receives 30000 license fees from its licensee? Here as HUF is receiving License fees and also paying rent to Karta so clubbing provisions will apply in such a case?. ) or
3. Karta makes will in favor of HUF, so inheritance is denied from karta’s side and SO DOES clubbing apply here.?

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Option 2. LOAN

To bring my investment in HUF without clubbing,  Karta gives loan to HUF at 0.5 to 2% per year and huf makes investment , earns interest at approx 10 % per year

QUERY 2.
1. Does IT Dept allows 0.5 to 2% annual interest Income tax??
2. How much loan can be given to huf safely?
3. for this , is it Required to make a notarised LOAN agreement for IT Dept? And is this safe option?
4. How to disclose to income tax about transferred amount as loan?

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Option 3, GIFT

Any income from gift given by karta or coparrcener to HUF will bring clubbing provision so,
if,

QUERY 3
1 >>> My UNCLE’S SON , a BLOOD RELATIVE, BUT NOT MEMBER OF HUF , as was not included in HUF DEED., AND AS NOT MEMBER OF HUF he WONT GET CLUBBING, right?,
2. SO ANY GIFT FROM HIM OR DISTANT RELATIVES WHO ARE NON MEMBERS FATHER’S SIDE WILL BE TAX FREE?
3 . >> and DOES special OCCASION REQUIREd to validate GIFT?
most important >> 4. yearly how much gift from relatives and Loan from Karta to HUF should be transferred safely without getting Notice by IT Dept , in this HUF's first commencement year?

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Option 4 , INHERITANCE

1. In ancestral property from my mother’s side can i bring MY 33 % share+ additional 33 % share received as gift from my aunty?
2. Which documents (gift deed etc?) need to be prepared, where HUF will be mentioned as beneficiary ?
3. is MOTHER'S LINEAL side property is allowed to be added in HUF as inheritance?
And
apart from above , in first commencement year of HUF, SAFELY HOW I can RAISE HUF CAPITAL AND TRANSFER RENT AND FUNDS WITHOUT involving CLUBBING PROVISION and IT NOTICE ?
> (Our income includes from rent of co-owned property and interest from investments)


Thanks and kind regards,

ritesh shah - 8779496245

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 It appears you have several queries related to structuring your HUF (Hindu Undivided Family) and minimizing tax implications under Indian tax laws. Let's address each of your options and queries:

### Option 1: Bringing Rental Income to HUF

**Query 1: Safest Way to Bring Rental Income to HUF**

1. **Gift Agreement**: Transferring ownership of the property to the HUF through a registered gift deed without any consideration can be a straightforward approach. However, the rental income from the property will still be clubbed with the income of the donor (karta) unless structured properly.

2. **Long Lease Agreement**: If the karta (you) leases the property to the HUF at a nominal rent (like Rs. 3,000 per month), and the HUF subsequently licenses it out to a third party at market rates (like Rs. 30,000 per month), there's a risk of clubbing provisions applying because you (karta) are receiving rent indirectly. This method may not effectively avoid clubbing provisions.

3. **Will in Favor of HUF**: Inheritance through a will does not typically avoid clubbing provisions unless structured carefully under specific legal provisions. This method may involve legal complexities and professional advice is advisable.

### Option 2: Loan to HUF

**Query 2: Loan to HUF without Clubbing**

1. **Interest on Loan**: If you charge interest on the loan to HUF, it should be at least the prescribed rate of interest as per the Income Tax Act (currently around 8% per annum). Charging a lower interest rate (0.5% to 2%) may not be deemed as arm's length and could attract clubbing provisions.

2. **Safe Loan Amount**: There's no specific limit on the loan amount that can be given to HUF, but it should be reasonable and not excessive to avoid questions from tax authorities.

3. **Loan Agreement**: It's advisable to have a notarized loan agreement specifying the terms (loan amount, interest rate, repayment schedule, etc.) to substantiate the transaction to tax authorities.

4. **Disclosure**: The transaction should be disclosed in both the karta's (your) and HUF's income tax returns to avoid any discrepancies.

### Option 3: Gift

**Query 3: Gift to HUF from Relatives**

1. **Clubbing Provisions**: Gifts from blood relatives (like your uncle's son) who are not members of the HUF do not attract clubbing provisions. However, any income earned from such gifted assets will be taxable in the hands of the HUF.

2. **Tax-Free Gifts**: Gifts from non-members of HUF (like relatives on the father's side) can be tax-free for the HUF. There's no specific limit on the amount, but it should be reasonable and explained if questioned.

3. **Special Occasion**: There's no requirement for special occasions for validating gifts. A simple gift deed or transfer deed is sufficient for documentation purposes.

### Option 4: Inheritance

1. **Ancestral Property**: You can bring your share of ancestral property (from your mother's side) into the HUF. This includes your 33% share and any additional share received as a gift.

2. **Documentation**: You will need a gift deed or transfer deed to transfer ownership of the property to the HUF. This should clearly mention the HUF as the beneficiary.

### Initial Capital and Transfer in First Commencement Year

- To start the HUF, you can contribute funds through gifts or loans from relatives (as explained above).
- Rental income can be transferred to the HUF through proper documentation (like lease agreements or gift deeds).
- Ensure all transactions are properly documented, disclosed in tax returns, and structured to comply with tax laws to avoid clubbing provisions.

### Conclusion

For structuring your HUF and minimizing tax implications, it's crucial to:

- Seek professional advice from a tax consultant or CA familiar with HUF taxation.
- Ensure all transactions are supported by proper documentation (gift deeds, lease agreements, loan agreements, etc.).
- Regularly review and update your tax strategy based on changes in tax laws or regulations.

Each option has its implications, and the correct approach will depend on your specific circumstances and objectives. Consulting with a tax professional will help you navigate these options effectively.