What is the tax treatment when shares are transferred from an HUF to an individual account?

• Missed HUF ITR can be updated after March 31, 2026
• Dividend income from HUF assets must be clubbed with HUF income
• Document share transfers with a memorandum of understanding

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What happens when assets are transferred from an HUF to an individual account? Today’s Ask Wallet Wise explains why a member has no recourse once the deadline to file a revised ITR has expired.

The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address them.

I had a serious health issue in the financial year 2024-5 for which I incurred huge expenditure. So I had transferred some of the shares from my HUF account to my individual account. The dividend income from these shares was shown in my individual ITR, and the tax was paid accordingly. The HUF ITR could not be filed and is still pending. Please suggest how this will be viewed by the Income Tax Department. 

Expert’s Advice: The transfer of shares from your HUF to your individual account can be treated as a gift by the HUF to you, but only if certain legal and tax conditions are satisfied. Transferring part of the assets to its members is treated as a partial partition of the HUF under the Income-tax Act. Partial partition of the HUF is not recognised under the income tax laws. So, the income arising from the asset transferred must be clubbed in the hands of the HUF, even though the transferee has received it in his account.

Since the time to file a revised ITR has passed, you cannot do anything about it. However, as you have not filed an ITR of the HUF, you can file an updated ITR after March 31, 2026, including the dividends in respect of these shares received by you and included in your ITR. Please note that the clubbing provisions will continue to apply till a full partition of the HUF assets takes place for dividends received and capital gains realised on the sale of these shares. This is a very cumbersome process to follow and comply with year after year.

Alternatively, you can treat the transfer of shares from your HUF account to your account as a loan of the shares. The same can be reversed by transferring the shares to the HUF's demat account, along with the dividends received, to avoid the hassle of applying the clubbing provisions year after year, provided you have not sold those shares yet.

Whatever course of action you decide, it is better to document this in the form of a memorandum of understanding between you and your HUF.