Tax on transfer of family propertytrust to its beneficiaries
This query is : Resolved
05 January 2015
What will the tax liability(Income Tax and Capital Gain) on transfer/ distribution of Family Trust Property to its beneficiaries,
Implication of Revocable and Irrevocable Family Trust (having defined beneficiaries and their shares) on distribution of that family Trust Property to its beneficiaries.
Also whether answer will be same where settler and beneficiaries are same person in the family Trust Deed ?
What Should be incorporated in Trust deed regarding this distribution ?
Implication of Revocable and Irrevocable Family Trust (having defined beneficiaries and their shares) on distribution of that family Trust Property to its beneficiaries.
Also whether answer will be same where settler and beneficiaries are same person in the family Trust Deed ?
What Should be incorporated in Trust deed regarding this distribution ?
06 January 2015
As and when any income arises to private family trust the same is taxed in the hands of the trust and then at the time of minor becoming major the property transferred is tax free.
This type of trusts were formed when the tax rates were very high and trusts were investing in tax free securities to give the benefit to the minor but now hardly anyone is forming these trust. Specially in Kolkata people are forming these type of trusts
This type of trusts were formed when the tax rates were very high and trusts were investing in tax free securities to give the benefit to the minor but now hardly anyone is forming these trust. Specially in Kolkata people are forming these type of trusts
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14 January 2015
Thanks
Sir
I have also a querry regarding Gift By HUF,
I have read many articles on various sites but have some little confusion please clear.
Can HUF make gift its Property to a member of HUF or to Karta only thru Partition ?
HUF have many properties but wants to transfer shares held as investment to Karta or to Wife of Karta ?
Whether there is any case where Shares held by HUF can be transfer to it Karta/wife/son (not to all members of HUF) ?
Sir
I have also a querry regarding Gift By HUF,
I have read many articles on various sites but have some little confusion please clear.
Can HUF make gift its Property to a member of HUF or to Karta only thru Partition ?
HUF have many properties but wants to transfer shares held as investment to Karta or to Wife of Karta ?
Whether there is any case where Shares held by HUF can be transfer to it Karta/wife/son (not to all members of HUF) ?
26 July 2025
Great questions! Here’s a detailed explanation regarding tax implications on transfer/distribution of family trust property and related queries on HUF gifting:
---
### 1. **Tax on Transfer/Distribution of Family Trust Property to Beneficiaries**
* **Trust Taxation Basics:**
* A **family trust** is generally treated as a separate taxable entity under Income Tax.
* The **income earned by the trust** is taxed in the hands of the trust.
* When the **trust distributes income** to beneficiaries, the beneficiaries are taxed on the amount received (unless income is specifically taxed in the hands of the trust as per applicable sections).
* **Capital Gains on Transfer of Property by the Trust:**
* When the trust **transfers property to beneficiaries**, it is generally treated as a **deemed transfer** by the trust.
* The trust is liable to pay **capital gains tax** on the transfer (sale) value or fair market value (FMV) of the property.
* The beneficiaries receive the property **without any immediate capital gains tax liability** (assuming it is a distribution and not a sale by them).
* **Revocable vs Irrevocable Trusts:**
* **Revocable Trust:** Settlor (person creating the trust) retains control; income is generally taxed in the hands of the settlor.
* **Irrevocable Trust:** Trust is independent; income is taxed in the hands of the trust or beneficiaries (if distributed).
* Tax implications on distribution may differ slightly, but **capital gains on transfer by trust applies in both cases**.
* **Settlor and Beneficiaries Being Same Person:**
* If settlor and beneficiaries are the same, there may be special provisions where income or capital gains may be taxed in the hands of the settlor.
* However, **capital gains on transfer of property by the trust is generally taxable at the trust level**.
* **What to Include in Trust Deed:**
* Specify the **nature of beneficiaries and their shares**.
* Include clauses about **distribution of income and capital assets**.
* Clarify whether the trust is **revocable or irrevocable**.
* Include **provisions on taxation responsibility** for income and capital gains.
* Provide powers to trustees to **transfer/distribute property**.
---
### 2. **Regarding Gift by HUF to its Members (Karta, Wife, Son, etc.)**
* **Can HUF gift property to members only through partition?**
* Generally, **property transfer from HUF to its members is done via partition**.
* **Gifts by HUF to its members outside partition are not common or recommended** as it may create tax complications.
* **Can HUF transfer shares held as investment to Karta or Karta’s wife?**
* HUF can **transfer shares or property by way of partition** among coparceners (members).
* Transfer to non-members (like wife) may not be straightforward unless wife is a member or the gift is properly documented and supported.
* **Cases where HUF can transfer shares to Karta/Wife/Son individually?**
* Generally, HUF **cannot gift or transfer property to individual members selectively outside partition**.
* Partition is the proper way to divide HUF assets.
* Gifts to members are usually taxed as gifts in their hands unless covered under exemptions (like gifts from relatives).
---
### Summary
| Aspect | Tax Implication/Note |
| ------------------------------ | -------------------------------------------------------------- |
| Transfer of property by trust | Capital gains taxable in hands of trust on transfer |
| Distribution to beneficiaries | Generally no immediate tax on distribution |
| Revocable vs irrevocable trust | Income taxed in settlor (revocable) or trust (irrevocable) |
| Settlor = beneficiary | May attract taxation in settlor, but CG tax on trust |
| HUF gifts to members | Usually via partition; direct gifts to individuals are complex |
| Transfer to wife of Karta | Possible if she is a member; else may be treated as gift |
---
If you want, I can help draft clauses for the trust deed regarding distribution or help you understand partition procedures for HUF transfers. Would that help?
---
### 1. **Tax on Transfer/Distribution of Family Trust Property to Beneficiaries**
* **Trust Taxation Basics:**
* A **family trust** is generally treated as a separate taxable entity under Income Tax.
* The **income earned by the trust** is taxed in the hands of the trust.
* When the **trust distributes income** to beneficiaries, the beneficiaries are taxed on the amount received (unless income is specifically taxed in the hands of the trust as per applicable sections).
* **Capital Gains on Transfer of Property by the Trust:**
* When the trust **transfers property to beneficiaries**, it is generally treated as a **deemed transfer** by the trust.
* The trust is liable to pay **capital gains tax** on the transfer (sale) value or fair market value (FMV) of the property.
* The beneficiaries receive the property **without any immediate capital gains tax liability** (assuming it is a distribution and not a sale by them).
* **Revocable vs Irrevocable Trusts:**
* **Revocable Trust:** Settlor (person creating the trust) retains control; income is generally taxed in the hands of the settlor.
* **Irrevocable Trust:** Trust is independent; income is taxed in the hands of the trust or beneficiaries (if distributed).
* Tax implications on distribution may differ slightly, but **capital gains on transfer by trust applies in both cases**.
* **Settlor and Beneficiaries Being Same Person:**
* If settlor and beneficiaries are the same, there may be special provisions where income or capital gains may be taxed in the hands of the settlor.
* However, **capital gains on transfer of property by the trust is generally taxable at the trust level**.
* **What to Include in Trust Deed:**
* Specify the **nature of beneficiaries and their shares**.
* Include clauses about **distribution of income and capital assets**.
* Clarify whether the trust is **revocable or irrevocable**.
* Include **provisions on taxation responsibility** for income and capital gains.
* Provide powers to trustees to **transfer/distribute property**.
---
### 2. **Regarding Gift by HUF to its Members (Karta, Wife, Son, etc.)**
* **Can HUF gift property to members only through partition?**
* Generally, **property transfer from HUF to its members is done via partition**.
* **Gifts by HUF to its members outside partition are not common or recommended** as it may create tax complications.
* **Can HUF transfer shares held as investment to Karta or Karta’s wife?**
* HUF can **transfer shares or property by way of partition** among coparceners (members).
* Transfer to non-members (like wife) may not be straightforward unless wife is a member or the gift is properly documented and supported.
* **Cases where HUF can transfer shares to Karta/Wife/Son individually?**
* Generally, HUF **cannot gift or transfer property to individual members selectively outside partition**.
* Partition is the proper way to divide HUF assets.
* Gifts to members are usually taxed as gifts in their hands unless covered under exemptions (like gifts from relatives).
---
### Summary
| Aspect | Tax Implication/Note |
| ------------------------------ | -------------------------------------------------------------- |
| Transfer of property by trust | Capital gains taxable in hands of trust on transfer |
| Distribution to beneficiaries | Generally no immediate tax on distribution |
| Revocable vs irrevocable trust | Income taxed in settlor (revocable) or trust (irrevocable) |
| Settlor = beneficiary | May attract taxation in settlor, but CG tax on trust |
| HUF gifts to members | Usually via partition; direct gifts to individuals are complex |
| Transfer to wife of Karta | Possible if she is a member; else may be treated as gift |
---
If you want, I can help draft clauses for the trust deed regarding distribution or help you understand partition procedures for HUF transfers. Would that help?
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