Building Initial Capital for Hungarian Residency without Ancestral Assets

Creating an Hindu Undivided Family (HUF) without Inherited Assets: Expert Advice

The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries. Individuals can email their queries to [email protected], and we will try to get a top financial expert to address them.

A recent query from a reader highlights the challenges of creating an HUF without inherited assets. The query was from a family of four, consisting of a husband, wife (both earning), and two minor daughters. The main challenge was sourcing the initial capital, as they do not have any ancestral business or property.

To address this issue, the reader's father has investments in fixed deposits (FDs) and mutual funds. The reader is exploring the possibility of gifting these investments to the HUF and wants to know if it would be taxable.

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Gifts from Relatives and Tax Implications

Gifts received by an HUF from its members are treated as gifts from relatives and are exempt in the hands of the HUF. However, clubbing provisions apply to income earned on such gifts. Since the reader's father is not a member of their HUF, any gift received from him will be taxable in the HUF's hands if the total exceeds Rs 50,000 in a year.

In the case of a gift of Rs 4 lakh, the HUF can claim a deduction of Rs 1.5 lakh under Section 80C, reducing the taxable income to Rs 2.5 lakh, which is within the basic exemption limit under the old tax regime, resulting in no tax liability.

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Alternative Approach under the New Tax Regime

Under the new tax regime, the basic exemption limit is Rs 4 lakh, which covers the gifted amount. This means that the HUF may not need to invest under Section 80C, making it a viable option for building initial capital.

Conclusion

While gifting from relatives can be a viable option for building initial capital for an HUF, it is essential to consider the tax implications. The reader's father can gift up to Rs 50,000 without any tax liability, and gifts above this amount will be taxable in the HUF's hands. However, with proper planning, the HUF can claim deductions under Section 80C, reducing the tax liability.