Build corpus in HUF

An individual can grant an unlimited loan to an HUF at an 8% interest rate, provided it is transferred electronically (if ₹20,000 or more) and documented via a formal loan agreement. The 8% interest earned is taxable for the individual, while the HUF can claim it as an expense against its income, effectively avoiding income clubbing under Section 64(2).

Thanks for the response. This seems to be the safest way to build an initial corpus into the HUF if there is no inherited corpus or gift from an external source or another internal member. The primary point is that it should not attract an income-tax audit on the grounds that it has been done for the purpose of avoiding tax and, even if questioned, should be legally justifiable.

By doing so, one can essentially increase one's tax limits:

• For salaried individuals, the HUF can potentially fall into a lower tax bracket.

• For non-salaried individuals, there is an exemption of ₹12 lakh to ₹12 lakh + ₹4 lakh, as for an HUF the tax starts at ₹4 lakh.

• Double the long-term capital-gains exemption by splitting investments between HUF investments and individual investments.

• Split other income, such as dividend income, between one's individual investments and the HUF's investments.

• Of course, file taxes independently for the individual and the HUF.

Yes, the loan approach is permitted and the earlier answer is correct. A few additions that are worth knowing:

Section 64 clubbing does NOT apply to loans. Clubbing under Section 64 targets gratuitous transfers (gifts) of assets to HUF, not loans at fair market rate. A loan at 8% keeps you outside Section 64 entirely - the interest income you earn is taxable in your hands, but the HUF corpus and its future income are not clubbed back.

Documentation matters. The loan agreement should specify: amount, interest rate (8% is reasonable for FY 2026-27), repayment schedule, and mode of transfer (electronic if above Rs 20,000). A simple stamped agreement between you as individual and you as Karta of HUF is valid.

HUF files its own ITR. Once the HUF has investments and income, it files a separate income tax return. It gets its own Rs 2.5L basic exemption, 87A rebate (if income below Rs 7L), and separate Section 80C limit of Rs 1.5L. The tax-splitting benefit is real.

This [HUF taxation guide](https://taxgarden.in/blog/huf-taxation-india-formation-itr-filing-deductions-guide-ay-2026-27) covers the formation-to-filing process including how to handle interest-bearing loans from members.

That is very helpful. Thanks