Learn how to transfer assets to a Hindu Undivided Family (HUF), avoid clubbing provisions, and maximize tax benefits using inheritance, wills, and loans. Expert insights by CA Bhavesh Panpaliya.
📥 How to Transfer Assets to an HUF?
Assets can be transferred to an HUF in three common ways:
Inheritance – from deceased relatives
Will – bequeathing assets via testamentary transfer
Gifts – from members such as the Karta or coparceners
> 💡 Real-life Tip: If a father passes away leaving equity shares and mentions in his will that they go to the HUF, the family can hold them in the HUF’s name and optimize tax planning.
🎁 Are Gifted Shares to an HUF Tax-Free?
Yes and No.
👉 Gifted assets from a member are not taxable under Section 56(2)(x).
⚠️ BUT the income from those assets (dividends or capital gains) is still taxed in the hands of the person who gifted them, not the HUF.
This is due to Section 64(2) — the clubbing provision under the Income Tax Act.
> 📌 Example:
Rahul gifts ₹10 lakhs worth of shares to his HUF.
→ HUF earns ₹2 lakh capital gain from selling them
→ ₹2 lakh is taxed in Rahul’s hands, not the HUF’s.
🔄 How Do Clubbing Provisions Impact HUF Taxation?
Under Section 64(2):
If a member contributes assets/funds to the HUF
The income generated from those assets will always be taxed in the hands of the contributor
✅ HUF holds the asset
❌ Contributor pays the tax
🏛️ What if Shares Are Inherited or Received via Will?
This is where things change favorably.
If shares or other assets are received by an HUF through inheritance or will, the clubbing provisions do not apply.
🎯 Key Benefits:
Taxed entirely in HUF’s hands
Gets original holding period and cost for capital gains
Cleaner income separation
> 📌 Example:
An uncle leaves 500 TCS shares to the family HUF through his will.
→ Gains on sale are fully taxed in the HUF
→ No clubbing with any family member
👨👩👧👦 Can a Coparcener or Karta Contribute Personal Assets?
Yes — they can contribute voluntarily, but Section 64(2) still applies.
✅ No tax on the gift
❌ But income is taxed in the contributor’s hands
⚠️ Practical Problems with Clubbing Provisions
1. Scrutiny Confusion
Difficult to prove original ownership
Poor records can cause issues with the I-T Department
2. No Tax Separation
HUF becomes a mere proxy, defeating its purpose
3. Dual Return Complication
Both individual and HUF need coordinated ITR filings
> 💡 Pro Tip: Maintain clear gift deeds, loan agreements, and asset timelines to avoid clubbing confusion.
💡 Smart Ways to Capitalize an HUF (Legally)
✅ Strategy 1: Inheritance or Will-based Transfers
No clubbing issues
Taxed in HUF’s name
Better capital gains treatment
✅ Strategy 2: Contributions from Non-members (Below ₹50,000)
Below ₹50,000/year: Not taxed
Above: Taxable as other income
✅ Strategy 3: Loans from Members
Must be interest-bearing and documented
Income taxed in HUF
Interest paid to member can be claimed as expense
> 📌 Example:
CA Bhavesh lends ₹5 lakhs @ 6% to his HUF
→ HUF earns income on the capital
→ Pays interest to Bhavesh
→ Income taxed in HUF; interest allowed as deduction
🏆 Why Inheritance is Better Than Gifting Shares
In One Line:
📌 Inheritance = No clubbing + Full tax benefit to HUF
📌 Gifting = Clubbing applies = No real tax advantage
✅ For intergenerational tax planning, use wills to move assets to the HUF for real and legal tax benefits.
✅ Final Takeaway
🧠 Forming an HUF? Great.
🎯 Using it smartly? Essential.
Many families misuse gifting, assuming tax savings — but clubbed income neutralizes the benefit.
✅ Use inheritance, small non-member contributions, and documented loans to truly benefit from HUF status.
📞 Need Help?
🎯 Want to form an HUF, create a will, or plan tax-smart investments?
👉 Contact https://wa.me/qr/GEYJOKSR22GFA1
📧 Or email: bpanpaliya@gmail.com
📝 Visit: https://cabhaveshpanpaliya.com/
✅ Personalized Consultation | ✅ Compliant Documents | ✅ Long-term Tax Planning