Taxation on HUF and Minor's Income

Taxation on HUF and Minor's Income

• HUFs are liable to pay tax on income exceeding Rs.1,60,000 at the rates applicable to individuals.

How to create new HUF?

• Actually when we talk of creating an HUF as a separate entity for tax purposes, we mean creation of HUF property.

HUF property can be created in the following ways:

(1) By devolution of interest in coparcenary property of a coparcener who dies intestate;

(2) By inheritance through a specific bequest under a will;
(3) By partition of a larger HUF
(4) By reunion of separated coparceners;
(5) By receipt of gifts;
(6) By blending of individual property whit the family hotch-potch;
(7) By doing joint labour for the bebefit of HUF. Of the above, Gift and Will are the most common ways for creating an HUF.

Clubbing Of Income

• Income earned by a minor or a spouse can be clubbed with your income, which means that you will have to pay tax on your taxable income as well as theirs.

• However, there are a few instance where the income will not be clubbed in your hands.

Minor’s income

• Income earned by a minor is added to the income of the parent with the higher income, irrespective of the residential status of either the child or the parent.

• That is, clubbing applies even if the minor resides in India and parents are non-resident Indian (NRI) or vice versa.

• Non-clubbing of minor’s income.

• Clubbing provisions don’t apply to the income of a minor if minor earns money from manual work or by using his skill, experience, talent or specialized knowledge, the income will be taxed as his own income and will not be clubbed with that of the parent.

• For instance, if a minor earns money from acting in a play, participating in a quiz, selling painting or using computer-related skills, the money will be taxed in his own hands.