Hindu Undivided Family: How do I accumulate capital in my HUF?

I want to make a HUF. Getting a PAN card is not a problem. The problem is capital. Where do I get capital from? We are husband and wife (both earning), and we have two minor daughters. We don’t have any ancestral business or property. HUF members can’t give gifts to HUF as income will be clubbed with the member transferring the asset. My father is earning and has investments in FDs and mutual funds. If he gives my HUF a gift of ₹4 lakh, the HUF will invest ₹1.50 lakh under section 80C. Then net income comes down to ₹2.50 lakh, on which no tax is payable as up to ₹2.50 lakh no tax is payable, and there is no tax liability on the HUF. Will the HUF have to file its ITR?

Answer: This is a fascinating question. Gifts received by a HUF from its members are treated as gifts from relatives and thus are exempt in the hands of the HUF under Section 56(2)(x). Since your father is not a member of your HUF, the gift he gave will become taxable in your HUF’s hands if the aggregate of gifts received by the HUF from all the sources during the year exceeds fifty thousand rupees. So when he makes a gift of Rs. 4 lakhs to your HUF and the HUF invests and claims deduction for Rs. 1.50 lakhs under Section 80 C there will not be any tax liability on the HUF as Rs. 2.50 is the basic exemption limit for HUF under the old tax regime.

HUF Must File ITR to Claim Section 80C Deduction

Yes, your HUF will have to file its ITR as the total taxable income before the deduction under Section 80C would be more than the threshold of basic exemption. Please ensure that you file your ITR by the due date to avail yourself of the deduction under Section 80C. If you fail to file the ITR by the due date, the new tax regime will be the only option available to you.

Please note that you must prove your father’s source of funds if your HUF case is selected for detailed scrutiny. This is the entirely legal and the perfect way to create capital for your HUF.

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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.

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