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Rudra Bansal   04 September 2021

HUF Taxability Stock Market

If the Karta of the HUF transfers his holdings from his demat account to the demat account of HUF then at the time of sale the capital gain generated from sale of securities will be taxed in the hands of the HUF or will it be clubbed with the income of Karta of HUF.

 4 Replies


JGM (Knowledge Sharer)     04 September 2021

Since the securities are now that of HUF, the gains shall be taxed as that of HUF

CA. Nirmal Ghorawat

CA. Nirmal Ghorawat (Owner)     04 September 2021

Section 64(2) of the Income Tax Act, 1961 deals with clubbing of Income arising from transfer of separate property of an Individual into the HUF Corpus (referred to as converted property)

Accordingly from the limited facts stated in the query here it appears that the Gains arising from transfer of securities (earlier transferred by Karta to HUF - without adequate consideration) shall be taxable income in the hands of Transferor (Karta) under section 64(2) of the Income Tax Act 1961.

Rudra Bansal

Rudra Bansal   04 September 2021

Suppose if the karta who is having his personal security holdings (equity shares) in his demat account chooses to gift all his holdings to his father and then the karta's father who is supposedly not a member of the huf gives those securities as gift to the huf then in whose hands the gain generated from the sale of those securities be taxed ?

Also, is it needed to make a gift deed for the respective transfer of shares...

CA. Nirmal Ghorawat

CA. Nirmal Ghorawat (Owner)     06 September 2021

Gift received by HUF from Father of Karta is taxable under section 56(2)(x) - Receipt without or inadequate consideration (Gift) - of the Income Tax Act, 1961. In case of a HUF - only a member thereof is considered a relative for the purpose of Section 56(2)(x).

Additionally, Indirect Transfer to circumvent the provisions for Tax Avoidance, General Anti Avoidance Rules (GAAR) - Impermissible Avoidance Arrangement - provisions may need to be kept in mind.

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