Planning to move assets into an HUF? Read the fine print first

How transfer of personal assets to an HUF is taxed

• Self-acquired assets can be gifted to HUF without tax liability
• Declare movable assets; register immovable ones.
• Income from such assets is clubbed with the transferor's income

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Families often consider transferring personal assets into an Hindu Undivided Family (HUF) to build a shared family corpus and possibly lower taxes. While the move looks simple and tax-free at the time of transfer, the real impact emerges later, especially due to clubbing rules and loss of individual ownership. Today's Ask Wallet Wise query decodes how the transfer works and its tax implications.

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.

The common hotchpot of an HUF is almost empty.  One of the coparceners wishes to throw part of his self-acquired assets into the HUF hotchpot to augment the HUF corpus. What is the process for it and what are the merits and demerits of such a planning?

Expert Advice: Gifts received by an individual or an HUF from its relatives are not treated as income in the hands of the recipient irrespective of the value of the gift.

For this purpose, the income-tax law treats all the members of the HUF as its relatives. The act of throwing self-acquired asset into the common hotchpot of the HUF amounts to gifting of personal asset to the HUF.

Since gifts received from a relative is not treated as income in the hands of the HUF, there is no tax liability for either the member throwing his self-acquired property in the common hotchpot or the HUF who receives such gift.

In case of movable assets this can be done just by declaring the intention to throw self-acquired assets into common hotchpot. In case some immovable assets are to be thrown into the common hotchpot of the HUF, a registered gift deed is required to be made on which the requisite stamp duty will have to be paid as per the state laws and the document is also required to be registered under the “The Registration Act 1908”.

Though there are no immediate tax implications for this planning but clubbing provisions will apply on income accruing to the HUF from the asset so thrown into common hotchpot and such income will be clubbed in the hands of the member transferring the assets. In case the asset is distributed to the members on full partition of the HUF, the clubbing provisions will continue to apply in respect of the share allotted to the spouse of the person who had thrown his self-acquired assets into the HUF hotchpot.

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