can kartha of HUF transfer money to HUF in the form of loan? if so whats the tax implication on this? will the income earned is treated under HUF or in the hands of kartha? also while repaying the loan with interest do we need to get the approval from the coparners?
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Can kartha of HUF transfer money to HUF in the form of loan
Replies (2)
Quick Summary
1. Yes.
2. No effect, unless significant amount.
3. Yes, Clubbing rule applies.
4. Depends upon the HUF deed, but in general Challengeable.
A karta lending to the HUF:
• Yes, the karta (as an individual) can lend money to the HUF. A genuine loan (documented, with repayment terms, ideally with interest) isn't a gift, so 64(2) clubbing doesn't apply. Clubbing applies to transfers without adequate consideration.
• If interest is charged, the HUF can deduct it only if the loan is used for business or earning taxable income (Sec 36/57). The karta pays tax on the interest.
• Interest-free loans can be questioned as disguised gifts (64(2)). Keep documentation.
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