Coparcener loan to HUF

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A coparcener wants to offer an interest-free loan to their Hindu Undivided Family (HUF) via their capital account, allowing for easy withdrawal. However, tax authorities may not accept interest-free loans, potentially leading to the HUF's income being taxed under the coparcener's PAN via clubbing provisions. It's advisable to use a loan with a bank's prevailing interest rate to justify the transaction. Guidance on required documentation and sample loan agreements is also sought.

Hamenth

Hamenth (Querist)

11 May 2025 A coparcener of a Hindu Undivided Family (HUF) wishes to provide an interest-free loan to the HUF through the capital account, with the intention of being able to withdraw the loaned amount from the HUF whenever needed. Are there any tax implications for the coparcener in this scenario?

Additionally, what documentation is required for such a loan? Is there a standard loan agreement format that covers details such as the loan amount, interest rate (if any), repayment terms, and consequences in case of default? Please share or repoint to any sample documents.

Please also clarify the tax implications specifically when a coparcener lends money to the HUF.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

17 May 2025 Loan from coparcener to HUF without interest will not be accepted by ITO, and the the income earned over the loan amount by HUF will be taxed under the loaner's PAN account, under clubbing option. Loan with existing bank interest rate may justify your intention.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

28 September 2025 Good luck.....

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