Under the Income Tax Act, 1961, gifts received by an HUF are exempt if received from specified relatives. In case of an HUF, any member of the HUF is treated as a “relative” [as per Section 56(2)(x)]. So, if a coparcener (e.g., father, son, brother, etc.) gives a gift to the HUF, it is fully exempt in the hands of the HUF (no tax).
It is to be noted that the term “relative” is not specifically defined under clause (x) of Section 56(2) of the Income Tax Act, but has been borrowed from the Explanation to clause (vii). The definition provided under clause (vii) of Section 56(2) is as follows:
“relative” means, —
(i) in case of an individual— (A) spouse of the individual;(B) brother or sister of the individual;(C) brother or sister of the spouse of the individual;(D) brother or sister of either of the parents of the individual;(E) any lineal ascendant or descendant of the individual;(F) any lineal ascendant or descendant of the spouse of the individual;(G) spouse of the person referred to in items (B) to (F); and
(ii) in case of a Hindu undivided family, any member thereof;
Clubbing Provisions
Section 64(2) applies when a member transfers his property to the HUF without adequate consideration. In such a case, the income from that transferred asset is deemed to be the income of the member, not of the HUF. So while the gift itself is not taxable, any income generated out of such gifted property (rent, interest, dividends, etc.) will be clubbed back to the individual donor/coparcener.
Example: Mr. Sushil Antal (coparcener) gifts ₹10,00,000 to Sushil Antal HUF. The gift of ₹10,00,000 is exempt for Sushil Antal HUF. Suppose HUF invests this in FD and earns ₹80,000 interest. That ₹80,000 will be clubbed in Mr. Sushil Antal’s income (the donor’s income), not taxed in HUF.
Therefore, Gift by a coparcener to HUF shall be exempt in HUF’s hands. Income from gifted asset shall be clubbed with the income of that coparcener under Section 64(2).
Section 64(2) of the Income Tax Act, 1961
“(2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,—
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family 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 ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly :
Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual.
Explanation 1.—For the purposes of sub-section (2),—
“property” includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.
Explanation 2.—For the purposes of this section, “income” includes loss.”
As per Section 64(2), when an individual’s separate property is converted into HUF property after 31st December 1969, either by:
- Impressing it as HUF property,
- Throwing it into the common stock, or
- Transferring it to the HUF without adequate consideration, then this property is called “converted property”.
For any assessment year from 1st April 1971 onwards, the individual is deemed to have transferred the converted property to the HUF, to be held jointly by its members. Any income derived from the converted property is taxable in the hands of the individual, not the HUF. If the converted property is partitioned among family members, the income received by the spouse from such partitioned assets is deemed to arise to the spouse, not the individual.
Planning to gifts or asset transfers to an HUF
1. Through Inheritance / Will
If a member bequeaths or passes on assets to the HUF through inheritance or Will, then section 64(2) does not apply. The law clearly says that clubbing provisions are triggered only when a member transfers property voluntarily without adequate consideration to the HUF. In the case of inheritance or Will, the property passes by operation of law (not a voluntary transfer), hence no clubbing arises.
So, in your example: if a father leaves property in his Will specifically for the benefit of the HUF, the HUF becomes the absolute owner. Any income generated, like rental income, is assessable fully in the hands of the HUF and cannot be added back to the father’s or any other member’s income.
This is often used in tax planning, because moving assets to HUF through inheritance or Will ensures that the income remains taxed separately in HUF’s status, giving an additional tax file/family unit.
2. Gift from Non-Members (but within “Relative” definition)
If the HUF receives gifts from relatives of its members (such as maternal uncles, grandparents, brothers/sisters of members, etc.), then section 56(2)(x) provides a specific exemption, meaning the gift is not taxable. Since section 64(2) applies only where a member of the HUF transfers property to the HUF, there is no clubbing of income in such cases (i.e. gifts from non-members but within relative definition). The income from those gifted assets will be assessed in the hands of the HUF itself.
However, when the HUF receives a gift from a non-relative (stranger) and the amount exceeds ₹50,000 in a financial year, the entire value of such gift is taxable as income of the HUF. For example, if a friend of a member gifts ₹1,50,000 to the HUF and the HUF invests this in a fixed deposit earning interest of ₹12,000, then both the gift amount of ₹1,50,000 and the FD interest of ₹12,000 will be taxable in the HUF’s hands, making the total taxable income ₹1,62,000.
3. Corpus Created by Partition
When an HUF is created through the partition of a larger HUF, the assets allotted to the newly formed HUF automatically become its property. Since this is not a voluntary transfer by a member, Section 64(2) does not apply. Consequently, any income generated from these assets, such as rent, dividends, interest, or capital gains, is taxable in the hands of the new HUF itself and cannot be clubbed with the income of any individual member.
This is an important distinction because it allows the newly formed HUF to have its own independent tax assessment, providing a legal and tax-efficient way to manage family assets.
4. Income from Accretions
Once an asset is validly received by the HUF, whether through inheritance, Will, gift from a non-member relative, or partition, it becomes part of the HUF’s corpus. Any income generated from these assets, such as interest from FDs, dividends, rent, or capital gains, is taxable in the HUF’s hands alone. There is no clubbing of this income with any individual member’s income because the transfer is not a voluntary gift by a member, and therefore Section 64(2) does not apply.
This ensures that the HUF maintains its own independent tax identity and can accumulate income separately from individual members.
5. Avoid Direct Member-to-HUF Transfer
Direct gifts by members to the HUF, while exempt from tax, attract clubbing under Section 64(2), meaning any income earned from such assets is added back to the donor member’s income. To avoid this, better planning strategies include routing assets through inheritance or Will, where the HUF becomes the rightful owner and income is taxed solely in the HUF’s hands. Another approach is to accept gifts from non-member relatives, such as grandparents or maternal uncles, since these are exempt and not subject to clubbing. Additionally, building the HUF corpus through ancestral property ensures that the assets and the income generated from them remain within the HUF, providing both legal and tax efficiency.
Gift / Transfer to HUF – Taxability & Clubbing Provisions
| Source of Asset/Gift | Taxability in HUF (Sec. 56(2)(x)) | Clubbing under Sec. 64(2) | Who is taxed finally? |
| Gift by a member/coparcener (e.g., father, son, brother) | Exempt (member = relative) | Gift exempt, but income from such asset is clubbed | Donor member |
| Gift by non-member relative (e.g., maternal uncle, grandparents of member) | Exempt (falls under “relative” definition) | Not covered under Sec. 64(2) | HUF |
| Gift by non-relative (not covered in definition of relative) | Taxable if value > ₹50,000 in a year | Not applicable | HUF |
| Property received on partition of bigger HUF | Fully exempt | No clubbing | HUF |
| Property inherited through succession (death of member) | Fully exempt | No clubbing | HUF |
| Property received through Will (bequeathed to HUF) | Fully exempt | No clubbing | HUF |
| Income earned from accretions on valid HUF property (FD interest, rent, capital gains etc.) | Taxable in HUF | No clubbing | HUF |
Summary: In simple terms, if a member gifts assets to the HUF, the gift itself is exempt from tax, but any income generated from it is taxed in the donor member’s hands due to clubbing under Section 64(2). If the HUF receives assets through gifts from non-member relatives, partition of a larger HUF, inheritance, or Will, both the gift and any income arising from it are exempt from clubbing and taxed in the HUF’s hands. However, if the HUF receives a gift from a stranger or non-relative and the value exceeds ₹50,000 in a financial year, the gift amount and any income earned on it are taxable in the HUF.
DRAFT GIFT DEED
This Gift Deed is executed on this ___ day of ____, 2025 by:
Donor:
Name: [Donor’s Name]
Relationship with HUF: [e.g., Maternal Uncle]
Address: [Donor’s Full Address]
PAN: [Donor’s PAN]
Recipient (Donee):
Name of HUF: [HUF Name, e.g., XYZ HUF]
Represented by its Karta: [Name of Karta]
Address: [HUF Address]
PAN: [HUF PAN]
RECITALS
1. The Donor is the lawful owner of the sum of 4,00,000 (Rupees Four Lakh only).
2. The Donor desires to gift the said amount to the HUF out of natural love and affection without any consideration.
NOW THIS DEED WITNESSETH AS UNDER:
1. Gift: The Donor hereby voluntarily and irrevocably gifts a sum of 4,00,000 (Rupees Four Lakh only) to the HUF, represented by its Karta, to be held as the absolute property of the HUF.
2. Acceptance: The HUF, through its Karta, accepts the gift and agrees to hold it as part of its corpus.
3. Possession: The Donor has handed over the said sum to the HUF by way of [cheque/bank transfer/cash], and the HUF hereby acknowledges receipt of the same.
4. Irrevocability: This gift is made voluntarily, out of natural love and affection, and is irrevocable.
5. No Consideration: No monetary or other consideration has been paid or promised by the HUF to the Donor for this gift.
6. Tax Compliance: Both parties agree to comply with applicable provisions of the Income Tax Act, 1961, and confirm that this gift is made in accordance with the same.
IN WITNESS WHEREOF, the parties have executed this Gift Deed on the day, month, and year mentioned above.
Donor: ___________________
Name: [Donor Name]
Signature: ____________
Donee (HUF through Karta): ___________________
Name of Karta: [Karta Name]
Signature: ____________
Witness 1: ___________________
Name:
Address:
Signature:
Witness 2: ___________________
Name:
Address:
Signature:
Author Bio
Could you please provide further details regarding the exemption status of assets received by a Hindu Undivided Family (HUF) from non-member relatives? Given that the definition of “relative” in the context of a HUF is typically restricted to its members, it appears that any such receipts falling outside the purview of Section 56(2)(x) would invariably lead to clubbing provisions being applicable.