My CA states that I can take any amount as gift from my father for initial contribution to my newly formed HUF and also claim that there is no tax liability on such gift transaction for the first time. Gifts received subsequently will be taxed as per their opinion. I understand that this is wrong and I will have to pay tax if the total income of the HUF including such gifts exceeds 2.5 lakhs. Please tell me if my CA is correct or I am correct.
Answer: After abolishing the Gift Tax Act, where the donor was required to pay tax on the amount of gifts made during the year, the government later introduced a provision in the Income Tax Act under which the recipient of the gift would be liable to pay tax. payment is required. Gifts received by him if the aggregate amount of gifts received by him during the year exceeds the limit of fifty thousand rupees. Although gifts received from certain specific relatives are outside the scope of this provision, the gifts are treated as income of the individual recipient.
As regards gifts received by HUF, its members should be treated as its relatives and thus gifts received by HUF from its members should not be taxed without limitation. Though it is not to be taxed in the hands of HUF, but the income from gifted property is required to be clubbed with the income of the person making the gift. The Karta, his wife and all family members whether son, daughter, daughter-in-law and children up to the fourth generation and their wives are treated as members of HUF. Karta’s father should not be treated as relative of HUF, hence any gift received by your HUF from your father will be treated as income in the hands of your HUF if the total amount of gifts received by your HUF in a year is more than fifty thousand. , The Income Tax law does not differentiate between initial gifts to HUF and subsequent gifts and hence all gifts received from your father will be subject to tax if the aggregate value of gifts exceeds the limit of fifty thousand rupees in a year. So your CA is wrong and your understanding of law is correct.
Balwant Jain is a Tax and Investment Specialist and can be contacted at jainbalwant@gmail.com and @jainbalwant on Twitter.