Section 10(2): Amounts Received by a Member from HUF Income

Section 10(2) of the Income Tax Act, 1961, provides a tax exemption for sums received by a member of a Hindu Undivided Family (HUF) out of the family’s income or from an impartible estate. This exemption is based on the principle that HUF members have a pre-existing right to the family’s income, so such receipts are not considered taxable income .

Key Conditions for Exemption Under Section 10(2)

For the exemption to apply, the following conditions must be met:

1. Source of Payment
   • The amount must be received out of the HUF’s income(not from the sale of HUF assets or capital gains).
   • If the payment comes from an impartible estate, it must be from the estate’s income
2. Recipient’s Status
   • The recipient must be a coparcener or memberof the HUF (not an outsider).
   • If a member receives money in an individual capacity(e.g., salary from HUF business), it may be taxable
3. Limit of Exemption
   • The exemption is limited to the member’s sharein the HUF income.
   • Example:If the HUF earns ₹10 lakh and a member’s share is 25%, ₹2.5 lakh received is exempt. Any excess amount is taxable

Examples of Exempt vs. Taxable Receipts

Exempt Receipts (Under Section 10(2))

✅ Monthly allowance from HUF income.

✅ Gift or lump sum (e.g., for marriage/education) from HUF earnings.

✅ Share of profits from HUF business or agricultural income

Taxable Receipts (Not Covered Under Section 10(2))

❌ Salary from HUF business (treated as individual income).

❌ Sale proceeds of HUF assets (capital gains apply).

❌ Gifts from another member (not from HUF income)

Interaction with Section 64(2) (Clubbing Provisions)

• Section 64(2)allows tax authorities to club a member’s income if the HUF income is diverted to avoid tax.
• Example:If a member transfers personal assets to HUF and later receives income from it, the income may be taxed in the member’s hands

Practical Implications & Documentation

• HUF must maintain recordsof income distribution to prove exemption claims.
• Salary paid to membersmanaging HUF affairs must be reasonable; else, it may be scrutinized.
• Tax filing:Exempt HUF distributions should be disclosed in ITR but not included in taxable income