I have received a gift of Rs 10 lakh from my father through his HUF. Will it be taxable?

I have received a gift of Rs 10 lakh from my father through his HUF. Will it be taxable?

Receiving gifts from family can sometimes trigger tax liabilities. Here’s what happens if you get a gift from your father’s HUF. Moneycontrol’s Ask Wallet-wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com and we will try and get a top financial expert to address your queries.

My father, as the Karta of his HUF, of which I am a member, wants to make a gift of Rs 10 lakh to me. What are the tax implications of this transaction? Do I need to pay tax on this gift? If the gift is taxable, are there any other ways to take money from the HUF without incurring tax liability?

Expert Advice: As per Section 10 of the Income Tax Act, any distribution of income made by an HUF to its members is fully exempt in the hands of the members. In my opinion, this exemption is available only to the extent of the current year’s income and does not extend to distributions made out of HUF assets or accumulated past income.

If the aggregate of all gifts received by a person in a financial year exceeds Rs 50,000, the amount is treated as income of the recipient. However, any gift received from a specified relative is not treated as income, irrespective of the amount.

For this purpose, gifts received by an HUF from its members are not treated as income of the HUF, as members fall within the definition of “specified relatives.” However, the reverse is not true—an HUF is not considered a specified relative of its members. Therefore, a gift received by a member from the HUF will be taxed as income in the hands of the recipient.

Accordingly, the gift you receive from your father’s HUF shall be included in your income, and you will have to pay tax on it at the slab rate applicable to you.

Regarding exemption for assets received on partition of an HUF, it applies only when a member receives assets upon full partition of the HUF. In that case, the receipt is not treated as income in the member’s hands. Making a gift by an HUF to a member is considered a partial partition, and since partial partitions are not recognized under income tax laws, the gift will not qualify as exempt.

Although the gift will be taxed as your income, any income earned by you from this gift will continue to be clubbed with the HUF’s income. As an alternative to avoid tax, you may consider taking an interest-bearing loan from your father’s HUF.

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