• Transfer of Income from HUF to a member

HUF is a proprietor of a business. Over the year it has earned a capital of Rs. 3.75 crore. All the relevant taxes have been paid.
Can I transfer 3 crores from it to a member of the same HUF and use section 10(2) and get exempted from Income Tax ? 

Relevant Case 
Vineetkumar Raghavjibhai Bhalodia vs ITO, Rajkot Wd.5(4)
Asked 4 months ago in Income Tax

Hello,

 

HUF (Hindu Undivided Family) is a unique feature of the Indian tax system, allowing a family to pool its resources in a common entity. However, the transfer of income or assets from the HUF to its members has specific tax implications.

Section 10(2) of the Income Tax Act, 1961, provides an exemption for any sum received by an individual as a member of a Hindu Undivided Family, where the sum is paid out of the income of the family or in the case of any impartible estate out of the income of the estate belonging to the family.

However, it's important to understand that this exemption is typically applicable to distributions made from the net income of the HUF after tax. The amount distributed from the income of the HUF to its members is exempt in the hands of the members to avoid double taxation since the income has already been taxed in the hands of the HUF.

In the case you mentioned, Vineetkumar Raghavjibhai Bhalodia vs ITO, Rajkot Wd.5(4), it would be necessary to look at the specific facts and judicial findings of the case to understand the context and the ruling. Generally, case law can provide insight into how the laws are interpreted and applied, but each case's facts can lead to different outcomes.

If you're considering transferring Rs. 3 crores from HUF capital to a member, it's crucial to ensure that the transfer aligns with legal provisions and the intended tax exemption under Section 10(2). Transferring large sums from the HUF to a member might raise scrutiny from the tax authorities, and it is essential to ensure that such transactions are carried out in compliance with the law and with proper documentation.

 

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

 

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
269 Answers
4 Consultations

5.0 on 5.0

Hi,

As per Section 10(2) of the Income Tax Act, 1961, any income of a Hindu Undivided Family (HUF) is exempt from tax if it arises from the following sources:

1. Income from property held for religious or charitable purposes: This includes income derived from property held under trust or other legal obligation wholly for religious or charitable purposes.

2. Income from property held for benefit of the public: This includes income derived from property held under trust or other legal obligation for the benefit of the public.

3. Income from property held under trust or other legal obligation: This includes income derived from property held under trust or other legal obligation for the benefit of any individual member of the HUF.

In your case, if the HUF has earned a capital of Rs. 3.75 crore over the year and all relevant taxes have been paid, the income earned by the HUF would not automatically be exempt under Section 10(2).

However, if the HUF decides to transfer Rs. 3 crores to a member of the same HUF, it would be considered as income from property held under trust or other legal obligation for the benefit of an individual member of the HUF. As per the provisions of section 10(2), such income would be exempt from tax in the hands of the recipient member of the HUF.

 

Damini Agarwal
CA, Bangalore
408 Answers
31 Consultations

5.0 on 5.0

Yes, because the income of the HUF would already be taxed once and it will not be taxable again in the hands of the members.

Damini Agarwal
CA, Bangalore
408 Answers
31 Consultations

5.0 on 5.0

Yes, the HUF can transfer its income to a member, and the member can claim an exemption under Section 10(2) of the Income Tax Act, provided the income has already been taxed in the hands of the HUF.

 

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

 

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
269 Answers
4 Consultations

5.0 on 5.0

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