TaxTMI 
TaxTMI 
TaxTMI 
HUF Fund Raising legal and illegal Examples while avoid clubbing
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....UF Fund Raising legal and illegal Examples while avoid clubbing<br> Query (Issue) Started By: - Hitesh Sathawane Dated:- 16-10-2025 Last Reply Date:- 20-12-2025 Income Tax<br>Got 2 Replies<br>Income Tax<br>I have created my HUF with my wife and son with no consideration or ancestral property, I am the karta of HUF Currently I have Bonds, SGBs, Stocks and MFs and some cash, I do not have ancestral....
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.... property to attach to huf currently I want to raise funds in HUF and want to avoid clubbing provisions, also want to explore ways to legally better plan the tax and eventually start family business I have few queries regarding below solutions and want to know if it is legal to implement it, if not what are the alternative means to achieve the same 1] Give as interest free or interest at RBI B....
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....ank Rate (2.5%) for X number of years loan to my HUF and use the money to buy bonds, Stocks or any other asset from Me, My relative or open market, Can I have a digital documentation of such loan agreement instead of stamp paper 2] Can I purchase SGBs in secondary market which are about to mature and gift to my HUF, as SGB do not have capital gains tax and once the amount is matured I can use th....
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....e fund to purchase other assets. 3] Can I offer my stocks or bonds as loan and expect bank interest rate from HUF for value on execution day. 4] may be 20 years down the line I will inherit ancestral property, what are the tax and cost implications to get the property under HUF 5] Is it possible to dissolve the current HUF and then recreate new HUF Are there any other ways I can raise....
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.... funds for HUF What makes fund raising legal and illegal when trying to avoid clubbing Reply By Ryan Vaz: The Reply: Applicable Law * Sec 2(31) - HUF separate taxable entity * Sec 64(2) - Clubbing on transfer of assets to HUF * Sec 56(2) - Gifts * Sec 47(i), 49(1) - Capital assets & cost * SC rulings: Surjit Lal Chhabda - 1975 (10) TMI 1 - Supreme Court, Yudhishter v Ash....
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....ok Kumar - 1986 (12) TMI 380 - Supreme Court Key Principle ?? Any asset/gift transferred by a member to HUF ? income is clubbed back ?? Loan to HUF = NO clubbing, if genuine and documented. Query-wise Answer 1] Interest-free / low-interest loan to HUF ? Legal & best method * Loan can be interest-free or any rate (no minimum under IT Act) * Must have: * Written loan agreement....
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.... * Repayment terms * Banking trail * Shown as liability in HUF books * Digital agreement valid (stamp paper not mandatory for tax purposes) Income earned by HUF from investments using loan ? taxable in HUF, not clubbed. 2] Buying SGBs and gifting to HUF ? Not advisable * Gift by member to HUF triggers Sec 64(2) * Even though SGB maturity gains are exempt, interest & rein....
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....vestment income will be clubbed ? Better: Loan funds ? HUF buys SGB directly. 3] Giving stocks/bonds as "loan" ? Not valid * Loan must be money, not assets * Transfer of shares/bonds = transfer ? clubbing / capital gains risk ? Correct route: Sell ? loan cash ? HUF invests. 4] Future inheritance of ancestral property ? On inheritance from father/grandfather: * Not taxable (Sec 56....
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....) * Becomes HUF property automatically * Cost = ancestor's cost (Sec 49) * Rental/capital gains taxable in HUF 5] Dissolve and recreate HUF ? No tax benefit * Partition needed (Sec 171) * Recreating HUF with same members does not reset clubbing Other Legal Ways to Fund HUF * Loans from members/relatives * Business income earned by HUF * Inheritance * Bank loa....
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....ns (once credit history exists) Legal vs Illegal Fund Raising ? Legal: Loans, independent business income, inheritance ? Illegal: Gifts from members, asset transfers, income diversion Courts apply substance over form. Reply By Hitesh Sathawane: The Reply: Thanks @Ryan for the reply i have a followup question for loan to Huf question q: in case i offer loan of x amount to my huf with approp....
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....riate documentation, and then can huf use the loan amount (x) to purchase stocks or bonds in off market transaction from me (karta) or other members of huf <br> Discussion Forum - Knowledge Sharing ....