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Home / Money / Personal Finance /  Income tax rules: What if HUF's Karta transfers money personal account to HUF?

Question: If Karta of an HUF transfers money from his personal account to the HUF account. How it is to be treated? What happens to the income the HUF earns out of it?

The money transferred by the Karta of the HUF may either be treated as loan if the same is intended to be repaid or it can be treated as gift if the money is not intended to repaid. As per Section 56(2) any gift received from specified relatives is tax free in the hands of the recipient. A member of the HUF is treated as relative of the HUF hence there is no tax implication at the time of the receipt of the money for HUF. However, due to the clubbing provision income earned by the HUF on the money gifted by its Karta will be treated as income of the Karta and will be added to his income year after year. The clubbing provisions will apply till the assets of the HUF are fully partitioned. Please note that it is only income on the asset transferred which will be subject to clubbing provision and not the income earned on the income which will be clubbed under the clubbing provision.

If the money is treated as interest free loan, there is a likelihood of the assessing officer applying the clubbing by invoking the provisions of Section 60 for transferring the income without transferring the asset because giving of interest free loans may be treated as transferring of income without transferring the asset.

The writer is a tax and investments expert and can be reached at jainabalwant@gmail.com

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