Gifts to an HUF and the Clubbing Rules

The commonest plan for a new HUF is for the karta to gift it money and let the HUF invest it, so that the interest is taxed in a second set of slabs. Half of the plan works. The gift is not taxed in the HUF’s hands, because it comes from a member. But the interest is taxed in the karta’s hands, because the Act treats property a member puts into his own HUF as still his for income purposes. Gifts from people who are not members raise the opposite problem: the clubbing rule does not touch them, but the gift itself may be taxable income of the HUF. This guide sets out both rules, the gifts that move the other way, from the HUF to a member, and the counterparts in the 2025 Act.

Which Act governs which year

• Gifts received up to 31 March 2026 (AY 2026-27 and earlier) are taxed under section 56(2)(x) of the Income-tax Act, 1961, which applies to receipts on or after 1 April 2017. Clubbing of income from converted property is section 64(2).
• Gifts received from 1 April 2026 (tax year 2026-27 onwards) are taxed under section 92(2)(m) of the Income-tax Act, 2025, with the exclusions in section 92(3) and the definitions in section 92(5). Clubbing is section 99(3) and (4).
• Income from property converted before 1 April 2026 is still income of a later year. For tax year 2026-27 onwards it is clubbed under section 99(3), which covers any conversion after 31 December 1969 (section 99(4)), whichever Act was in force at the time of conversion.

When a gift is income of the HUF

Section 56(2)(x) taxes “any person” who receives, without consideration or for inadequate consideration:

• money whose aggregate in the year exceeds Rs 50,000: the whole amount is taxed;
• immovable property without consideration whose stamp duty value exceeds Rs 50,000: the stamp duty value is taxed (with a separate rule for inadequate consideration); and
• other specified property (shares, jewellery, art, bullion and the like) without consideration whose aggregate fair market value exceeds Rs 50,000: the whole value is taxed.

Section 92(2)(m) of the 2025 Act repeats the three limbs and the Rs 50,000 thresholds. An HUF is a “person”, so the charge applies to it as to anyone. Joint, Inherited and Gifted Property covers the immovable-property limb in more detail.

The exclusion that matters: a gift from a member

The first exclusion in the proviso to section 56(2)(x) is a receipt “from any relative”. The Explanation to section 56(2)(vii), which clause (x) adopts, defines “relative” in two parts. For an individual it is a list: spouse, brothers and sisters, the spouse’s brothers and sisters, the parents’ brothers and sisters, lineal ascendants and descendants of the individual and of the spouse, and the spouses of those persons. For an HUF it is one line:

“(ii) in case of a Hindu undivided family, any member thereof”

Section 92(5)(g)(ii) of the 2025 Act says the same: “for a Hindu undivided family, any member thereof”. Section 92(3)(a) excludes a receipt “from any relative”.

So a gift to the HUF is excluded if, and only if, the donor is a member of that HUF. The karta’s own gift is excluded. So is a gift from his wife, his children or his father, if they are members of the same family.

Who is a member is a question of Hindu law. The Act does not say. In Surjit Lal Chhabda v. CIT (1975) 101 ITR 776, the Supreme Court described the joint family as “persons lineally descended from a common ancestor” and “their wives and unmarried daughters”, and said that “the daughter, on marriage, ceases to be a member of her father’s family”. Section 6 of the Hindu Succession Act, 1956, as substituted in 2005, now makes the daughter of a coparcener a coparcener “by birth … in her own right in the same manner as the son”. This guide has found no ruling on whether a married daughter’s gift to her father’s HUF is a gift from a “member” for section 56(2)(x).

Gifts from outside the family. Gifts from the karta’s in-laws, his married sister’s husband, or a family friend are not from members. They are taxable in the HUF’s hands above Rs 50,000 in aggregate for the year. They are excluded only if another limb of the proviso applies:

• under a will or by inheritance, or in contemplation of death (proviso clauses (III) and (IV); section 92(3)(c) and (d)); and
• on a partition of a larger HUF, a transaction not regarded as transfer under section 47(i), excluded by proviso clause (IX). Section 92(3)(g) excludes receipts by way of a transaction under section 70(1)(a).

The marriage exclusion does not help an HUF. Clause (II) covers a receipt “on the occasion of the marriage of the individual”. Section 92(3)(b) of the 2025 Act also speaks of “the marriage of the individual”. Wedding gifts received by the HUF, rather than by the bride or groom, fall outside it.

The clubbing rule: what a member puts in stays his

Section 64(2) applies where an individual who is a member of an HUF converts property that “having been the separate property of the individual” into family property, at any time after 31 December 1969. It covers three ways of doing so:

• “the act of impressing such separate property with the character of property belonging to the family”;
• “throwing it into the common stock of the family”; or
• transferring it “directly or indirectly, to the family otherwise than for adequate consideration”.

A gift by a member to his own HUF is the third. For any assessment year from 1971-72, the consequences are:

• (a) the individual is deemed to have transferred the converted property, through the family, to the members “for being held by them jointly”;
• (b) “the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family”; and
• (c) if the converted property is later partitioned, the income from the part received by the individual’s spouse is deemed to arise to the spouse from assets transferred indirectly by the individual. It is then clubbed with the individual’s income under section 64(1).

Under the proviso, income included in the individual’s total income is excluded from the family’s, or the spouse’s, so it is taxed once. Explanation 1 defines “property” widely: it includes any interest in property, the proceeds of sale, any investment representing those proceeds and, where the property is converted into other property, “such other property”. Explanation 2 makes “income” include loss.

Section 99(3) of the 2025 Act re-enacts the rule. It deems the individual to have transferred the property through the family to the members “for being held jointly”. It deems the income derived from it to be the individual’s (clause (i)) and applies section 99(1)(a) to the spouse’s share on a partition (clause (ii)). The income is then excluded from the family’s or spouse’s total income. Section 99(4) excludes property converted on or before 31 December 1969.

Three points follow.

It applies to every member, not only coparceners. The words are “an individual being a member”. A wife who gifts her own savings to her husband’s HUF is within section 64(2) just as he is. In Pushpa Devi v. CIT (30 August 1977, (1977) 109 ITR 730), the appellant was a member of a joint family consisting of herself, her husband, her parents-in-law, her minor son and three daughters. On 1 September 1961 she made a sworn declaration throwing her capital and her one-third share in a cinema business into the joint family stock. The Supreme Court held that “the right to blend is limited to coparceners only”, so she could not blend her property with the family’s. On a supplementary finding by the Tribunal, it held instead that she “must be deemed to have made a gift” of those items to the family. The assessment year was 1963-64, before section 64(2) came into force, so the judgment did not apply it. The point of the case for today is the characterisation: a non-coparcener’s declaration operates as a gift to the HUF. From AY 1971-72 such a gift is within section 64(2) by its words.

It catches the income, not the gift. The HUF does not pay tax on receiving the gift: the donor is a relative. The donor does not pay capital gains tax on giving it: section 47(iii) and section 70(1)(b) exclude a transfer of a capital asset by an individual “under a gift”. What section 64(2) and section 99(3) do is attribute every year’s income from the gifted asset to the donor.

The HUF’s cost is the donor’s cost. If the HUF later sells the converted asset, its cost is the cost to the previous owner, under section 49(1)(iv) (“by the mode referred to in sub-section (2) of section 64”). Under the 2025 Act it is entry (e) of Sl. No. 1 of the Table in section 73(1). Because Explanation 1 extends “property” to the proceeds of sale and to whatever the property is converted into, the income from reinvested sale proceeds remains within section 64(2). Whether the capital gain on the sale itself is “income derived from the converted property” is a question this guide has not found decided.

Where the clubbing rule does not reach

Section 64(2) and section 99(3) apply only to property that was the separate property of a member. They do not apply to:

• a gift from a non-member, such as a grandparent who has separated from the family, or a relative of the karta’s wife. The gift is taxable in the HUF’s hands above Rs 50,000 unless an exclusion applies, but its income is then the HUF’s own;
• property inherited by the HUF, or received on partition of a larger family; and
• income the HUF earns from its own ancestral assets.

That is why a family that wants the HUF to have income of its own looks to inheritance, partition or a will, rather than to the karta’s gift.

Money going the other way: from the HUF to a member

Two provisions protect a member who receives money from the HUF.

Distributions out of family income. Section 10(2) of the 1961 Act exempts “any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family”, subject to section 64(2). Schedule III, Table Sl. No. 1 of the 2025 Act exempts the same sum, on conditions that it is not covered by section 99(3) and (4) and has been paid out of the family’s income.

Gifts from the HUF. Whether a gift by an HUF to a member is a gift “from any relative” is not answered by the definition, because the individual’s list of relatives does not include an HUF. Two Tribunal decisions have treated such a gift as exempt.

• Vineetkumar Raghavjibhai Bhalodia v. ITO (ITAT Rajkot, ITA No. 583/Rjt/2007, order pronounced 17 May 2011). The assessee received Rs 60 lakh from his father’s HUF, of which he was a member. The Assessing Officer taxed it on the ground that an HUF is not a “relative”. The Tribunal held that an HUF is “a group of relatives”, so a gift from it is a gift from relatives. It also held that, in the alternative, the sum was exempt under section 10(2), which required only that the recipient be a member and that the sum be paid out of the family’s income, “may be of earlier year”.
• Pankil Garg v. Pr. CIT (ITAT Chandigarh, ITA No. 773/CHD/2018, AY 2011-12, order pronounced 17 July 2019). The assessee received Rs 5,90,000 from his HUF. The Assessing Officer accepted the claim in a reopened assessment, relying on Bhalodia. The Principal Commissioner revised the order under section 263, holding that an HUF is not a relative of its member and that section 10(2) needs a payment for consideration. The Tribunal quashed the revision. It followed Bhalodia on both points and called the Principal Commissioner’s reading of section 10(2) “wholly misconceived”.

This guide has not found a High Court ruling on the point, or a Tribunal decision taking the contrary view. The Revenue’s view, set out in the Pankil Garg revision order, is that the relationship runs one way only. Because the section 10(2) route depends on the sum coming out of the family’s income, the HUF’s books need to show the source of a distribution.

Reporting

• In the HUF’s return: a taxable gift from a non-member is shown under income from other sources. Income from converted property is not shown as the HUF’s income, because of the proviso to section 64(2).
• In the member’s return: income clubbed under section 64(2) is shown in the member’s own return. ITR-2 for AY 2026-27 asks for the income of specified persons to be included through Schedule SPI, and each head’s schedule carries a note to that effect.

What to have ready

• A list of the HUF’s members on the date of each gift. The definition turns on membership, not on relationship to the karta.
• A gift deed or letter for each gift, naming the donor, with the bank trail.
• For each asset the HUF holds: whether it came from a member, from a non-member, by inheritance or on partition. Only the first is clubbed.
• For converted property: the donor’s original cost and date of acquisition, which the HUF inherits for capital gains.
• For distributions to members: the HUF’s accounts showing that the sum was paid out of the family’s income.

In order

1. Identify the donor and whether the donor is a member of this HUF on the date of the gift.
2. A gift from a member is not taxed in the HUF’s hands, but every year’s income from it is taxed in the donor’s hands under section 64(2) or section 99(3).
3. A gift from a non-member is taxed in the HUF’s hands where the year’s aggregate exceeds Rs 50,000, unless it comes under a will, by inheritance, in contemplation of death or on partition. The marriage exclusion does not apply to an HUF.
4. The HUF keeps the donor’s cost and holding period for any converted asset it later sells.
5. Sums paid to a member out of the HUF’s income are exempt in the member’s hands under section 10(2) or Schedule III, Sl. No. 1. Gifts from the HUF to a member have been held exempt by two Tribunal benches, with no higher authority yet found.

The next guide, Partition of an HUF, explains when the Act recognises the end of an HUF, and why a partial partition is ignored.