06 April 2023
Hi Experts, Seeking guidance for a scenario where Karta is offering an interest free loan(from personal savings) of certain amount to his HUF for indefinite period in order to purchase a property as a co-owner. 1. Is it fine to give loan out of Karta's post tax savings for indefinite period i.e. no particular time to return back to Karta by HUF. Can there be any tax implications which are being missed? 2. Is it required to have some documentation for such loan or online transfers/cheques are enough? 3. Will there be any tax implication on Karta as an individual(due to the loan he gave) from the rental income of such property or only HUF is liable to pay tax on that income? Regards
06 April 2023
1.From a tax perspective, there shouldn't be any issue with the Karta offering an interest-free loan to their HUF for an indefinite period. However, it is important to note that the loan should be given with the intention of being repaid in the future. Additionally, the Karta should keep proper documentation of the loan, including the loan amount, terms, and repayment schedule (if any), to avoid any potential tax issues. 2.It is advisable to have some documentation for the loan to avoid any disputes in the future. This documentation can be in the form of a loan agreement, which should include details such as the loan amount, interest rate (if any), repayment terms, and consequences of default. 3.The tax implications of rental income from the property will depend on the ownership structure of the property. If the property is owned jointly by the HUF and Karta, then both the HUF and Karta will be liable to pay tax on their respective share of the rental income. However, if the property is owned solely by the HUF, then only the HUF will be liable to pay tax on the rental income. It is important to note that the HUF will be taxed as a separate entity and will have to file its own tax return.
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