My father's HUF wants to gift me ₹10 lakh. Will I need to pay tax on this gift? If I need to pay tax, are there other alternatives to take the money from the HUF.
Any distribution of its income made by a HUF to its members is fully exempt in the hands of its members. In my opinion, the exemption is available to the extent of current year’s income and does not extend to distribution made by the HUF out of its assets or past income. The gifts received by members from the HUF is not tax-free in the hands of the recipient member as gifts from HUF to its members is not covered in the exception provided under Section 56(2)(x). So the gift received by you 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. Since partial partition is not recognised under the income tax laws, it is only when the member receives assets on full partition of the HUF that there is no tax liability in the hands of the members as this is not treated as transfer within the meaning of Income Tax Act.
Since the gift made by father’s HUF to you amounts to partial partition and not recognised under the income tax laws, the income earned by you on such gift shall be continued to be clubbed with the income of the HUF. You can take an interest bearing loan from your father’s HUF as an alternative.
Balwant Jain is a tax and investment expert and can be reached on jainabalwant@ gmail.com and @jainbalwant on Twitter
