Transfer of rental earnings to HUF: What are the earnings tax provisions?

Question: One of my daughter-in-law has purchased a residential flat in Mumbai which has been let loose on month-to-month lease of fifty,000/-. She voluntarily needs to contribute the rental earnings on to my HUF to reinforce its corpus. I wish to know whether or not it’s completely authorized or not. Will it make any distinction if if she transfers the home to the HUF as an alternative of the rental earnings?

Answer: This is the case of switch of earnings with out switch of the asset. As per the provisions of Section 60 of Income Tax Act the place any earnings is transferred with out transferring the asset, such earnings shall be included within the palms of the proprietor of such asset. Therefore, the rental earnings shall stay taxable within the hand of your daughter in legislation. The rental earnings so transferred will likely be handled as items from her to the HUF. As per the earnings tax legal guidelines any present obtained from specified family is exempt underneath Section 56(2) within the palms of the recipient. Since members together with the daughter–in-law are specified family of the HUF, the HUF won’t have any tax legal responsibility in respect of the rental earnings so obtained.

It isn’t solely the earnings transferred which will likely be included within the palms of the daughter-in-law but in addition the earnings arising from investments made out of the lease transferred shall even be clubbed with the earnings of your daughter in legislation as a result of the rental earnings is nothing however present of an asset out of your daughter-in-law to the HUF. There wouldn’t be any change in tax implications even when she transfers the home to the HUF because the clubbing provisions will nonetheless apply in respect of the lease obtained by the HUF on such property. However the earnings earned on reinvestment of the rental earnings will likely be taxed within the palms of the HUF and never daughter because the clubbing provisions apply to the earnings on the asset transferred and never on earnings on earnings from the asset transferred.

Balwant Jain is a tax and funding knowledgeable and might be reached on jainabalwant@gmail.com

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