Clubbing of Income from Self-Acquired Property Converted to HUF Property [Section 64(2)]

Key Rule

When an individual converts their self-acquired property into HUF (Joint Family) property, any income generated from that property continues to be taxable in the individual’s hands (not the HUF’s).

How This Works

1. Self-Acquired Property→ Property earned through personal income (not inherited)
2. Conversion to HUF→ Transferring ownership to Hindu Undivided Family
3. Tax Effect→ Despite transfer, income (rent, capital gains, etc.) remains taxable as individual income

Examples

✅ Case 1: Residential House Conversion

• A (individual) converts his self-acquired flat into HUF property
• Rent received:₹20,000/month
• Tax Treatment:₹20,000/month taxable in  A’s personal income (not HUF)

✅ Case 2: Commercial Property Transfer

• B gifts her self-acquired shop to HUF
• Rental income:₹50,000/month
• Tax Treatment:₹50,000/month taxable in  B’s personal income

❌ Case 3: Inherited Property (Not Self-Acquired)

• C inherits property from father → automatically becomes HUF property
• Rental income:Taxable to HUF (Section 64(2) doesn’t apply)

Exceptions Where Clubbing Doesn’t Apply

1. Property acquired with HUF funds→ Income taxable to HUF
2. Ancestral property→ Already belongs to HUF
3. Gift from non-relatives to HUF→ Taxable to HUF

Tax Planning Implications

✔ No Tax Benefit: Converting self-acquired to HUF property doesn’t shift tax liability

✔ HUF Advantage Lost: Cannot use separate HUF basic exemption (₹2.5 lakh) for this income

✔ Better Alternative: Consider direct gifting to family members (but may attract other clubbing provisions)

Common Mistake: Assuming HUF conversion reduces tax – it doesn’t for self-acquired property!

Comparison: Self-Acquired vs. HUF Property

Key Takeaways

1. Section 64(2) is anti-avoidance– Prevents tax saving through HUF transfers
2. Only applies to self-acquired → HUF conversions
3. HUF benefits(separate PAN, deductions) don’t apply to such converted property income

Pro Tip:
If planning to transfer assets to family, consider:

• Direct gifts(but check other clubbing rules)
• Creating HUF with ancestral propertyinstead