HUF Tax Alert: Section 99 Keeps Income From Members’ Gifted Money Taxable to Donors

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Former Principal Commissioner of Income Tax O.P. Yadav examined this distinction in an analysis published on 28 September 2026. For families planning a transfer, it changes the expected savings. Members who already report these earnings only through the HUF may need to correct their own returns. The exemption on the original gift does not extend to its investment income. 

How Does Section 99 Affect Family Tax Planning?

An HUF has its own tax status. Under Section 202, the new regime applies a nil rate to total income up to ₹4 lakh. That can make transferring savings look attractive to a member paying tax at a higher rate. However, the family must first establish whose income the law recognises. Applying the HUF’s slab before checking the clubbing provision gives the wrong calculation. 

The member does not face tax twice on the same clubbed earnings. Section 99(3) excludes that income from the HUF’s total income once it is included in the individual’s income. This helps families reconcile their returns, but it does not deliver the savings expected from shifting personal investments into the HUF.

What Does the Expert Recommend for Existing Transfers?

Yadav, currently a tax evangelist at Prosperr.io, explained that the gift exemption and income-clubbing rule apply at different stages. His 28 September 2026 analysis also addressed a reporting mistake: showing the investment earnings in the HUF’s return does not override the obligation to include them in the contributing member’s income.

For members who omitted such income from their own AY 2026–27 returns, Yadav suggested considering a revised return under Section 139(5) of the 1961 Act, within the applicable statutory time limit. His advice concerns correcting the tax treatment of an existing transfer. It does not describe a new restriction announced in September. 

Why Is the Gift Exempt but Its Income Clubbed?

Section 92(3)(a) exempts qualifying receipts from relatives. For an HUF, Section 92(5)(g)(ii) defines a relative as a member of that HUF. The definition is narrower than the list available to an individual receiving a gift.

The tax treatment therefore depends on both the donor’s membership and what happens after the HUF receives the money.

Section 92(2)(m) sets an aggregate ₹50,000 threshold for money received without consideration. Where that provision applies and no exemption is available, the whole amount becomes taxable, rather than only the excess. A qualifying gift from a member remains exempt on receipt regardless of this threshold. Its earnings require a separate clubbing check. 

What Should Families Check Before Counting a Tax Saving?

The practical concern extends beyond filling in a return. A family could budget around investment income while overlooking the tax payable by the member who supplied the funds. For households meeting loan instalments from their overall income, that would overstate the money available after tax.

The editorial approach in LoansJagat’s 26 September 2026 coverage of salary and side income was to examine the nature of receipts before calculating the final liability. Applied here, the same approach means checking the donor, the transferred capital and the income attributable to it before claiming an HUF tax advantage. This is a planning implication of the provisions, rather than an additional tax rule. 

Did the New Act Introduce This HUF Restriction?

Section 64(2) of the Income-tax Act, 1961 already included income from personal property transferred to an HUF without adequate consideration in the contributing individual’s income. Section 99(3) continues that principle. The section number changed; the basic restriction on shifting this income did not.

The Ministry of Finance’s release dated 1 April 2026 confirmed the commencement of the 2025 Act. For filing purposes, FY 2025–26 income reported in AY 2026–27 remains governed by the 1961 Act, as the Income Tax Department’s transition FAQ explains. Tax Year 2026–27 falls under the new legislation. 

Conclusion

Section 99 requires families to examine the income earned after a member gifts personal funds. The HUF’s exemption on receiving the money cannot decide the donor’s final liability. For existing transfers, the useful starting point is the income already reported in each return.

Frequently Asked Questions

1. Is Money Gifted by a Member Taxable to the HUF?

A qualifying member’s gift is exempt under Section 92(3)(a). Income earned from the gifted funds is separately subject to clubbing.

2. How Much Can Parents Gift to an HUF?

A parent’s relationship with the karta alone does not establish exemption. The receiving HUF’s membership and other statutory exceptions need checking.

3. Does Gifting Through Parents Avoid HUF Clubbing?

Section 99(3) covers indirect transfers too, so routing personal funds through parents does not automatically avoid clubbing.

4. Can the HUF Use Its Exemption Limit Against Clubbed Income?

The clubbed income belongs in the contributing member’s tax calculation. The HUF cannot shelter it using its own exemption limit.

5. Which Provision Applies to AY 2026–27 Returns?

Section 64(2) of the 1961 Act applies to the relevant HUF transfers for FY 2025–26 income reported in AY 2026–27.