Hindu undivided family (huf)
This query is : Resolved
05 September 2013
Can huf give unsecured loans to karta and spouse of karta who is a member of huf to purchase a property in the joint name of karta and spouse of karta I.e co-owned by them jointly?Agreement n registration will be done in the joint name of karta and spouse of karta only.
Will the income arising from the property in the form of rent be taxable as huf income or individuals income?
Will the income arising from the property in the form of rent be taxable as huf income or individuals income?
Ajay Mishra
(Expert)
06 September 2013
Hi
A HUF is a separate entity for taxation under the provisions of S.2 (31) of the Income Tax Act, 1961. This is in addition to an individual as a separate taxable entity. This indicates that a person may be assessed in two different capacities- as an individual and as a Karta of his HUF.
Any income that arises on the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilisation of HUF assets (like rent earned on letting out HUF property) would be regarded as HUF income. It is important that the income be earned using HUF funds or property only. If the income arises on account of the personal exertions of the karta or any other member and not on investment of HUF funds, such income would generally be regarded as the individual income of the karta or the member.
If an HUF contributes funds to the capital of a partnership firm, profit and interest received (from the firm) by a partner who represents the HUF is regarded as HUF income. This is because the income in the partner’s hands arises on investment of the HUF’s funds. However, if the karta is also paid a salary by the firm for efforts put in by him, such funds would be regarded as the karta’s individual income. Speculative profit can be regarded as the income of an HUF, particularly in cases where the HUF has paid margin money or deposits for such transactions.
A HUF is a separate entity for taxation under the provisions of S.2 (31) of the Income Tax Act, 1961. This is in addition to an individual as a separate taxable entity. This indicates that a person may be assessed in two different capacities- as an individual and as a Karta of his HUF.
Any income that arises on the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilisation of HUF assets (like rent earned on letting out HUF property) would be regarded as HUF income. It is important that the income be earned using HUF funds or property only. If the income arises on account of the personal exertions of the karta or any other member and not on investment of HUF funds, such income would generally be regarded as the individual income of the karta or the member.
If an HUF contributes funds to the capital of a partnership firm, profit and interest received (from the firm) by a partner who represents the HUF is regarded as HUF income. This is because the income in the partner’s hands arises on investment of the HUF’s funds. However, if the karta is also paid a salary by the firm for efforts put in by him, such funds would be regarded as the karta’s individual income. Speculative profit can be regarded as the income of an HUF, particularly in cases where the HUF has paid margin money or deposits for such transactions.
06 September 2013
Sir I asked my question because I came across a decision of S.Periannan and L.Bansidhar and Sons and I got confused.So request you Sir to kindly go through the two judgements and give your valuable contribution.
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