According to reports from Upstox Securities, rental income from personally owned property can be taken in an HUF (Hindu Undivided Family) under specific conditions. The tax treatment depends on whether the property is owned individually or jointly with family members. When the property is owned individually, the rental income is treated as the individual's income for tax purposes. However, when the property is jointly owned with family members, the rental income is treated as HUF income, which may result in tax savings due to lower tax rates applicable to HUFs. As per the latest tax provisions, HUFs are assessed as separate entities and treated as distinct persons from individual members or Karta, providing additional benefits for family-owned properties. However, Section 96 of the Income Tax Act 2025 attributes such rental income to the individual owner, not the HUF, even if the rent is credited to the HUF's bank account. The ownership of the underlying asset remains the key factor in determining tax liability, not where the money is deposited.
As reported by Upstox Securities, clubbing provisions come into play when rental income is received from properties owned by family members. According to the Income Tax Act, rental income from properties owned by family members is clubbed with the income of the individual who is deemed to be the owner of the property. This clubbing provision ensures that rental income from family-owned properties is taxed in the hands of the individual who benefits from the rental income, regardless of the legal ownership structure. Under Section 96 of the Income Tax Act 2025, transferring income from an asset without transferring the asset itself does not change the tax treatment of that income. The fact that the money is deposited into an HUF account does not, by itself, change its tax character. The amount transferred to the HUF is also treated as a gift from the Karta to the HUF, but under Section 92(2), such a gift cannot be treated as HUF income because the Karta, being a member of the HUF, falls within the specified-relative category.
According to Upstox Securities, rental income from properties received as gifts is treated differently under tax laws. When rental income is received from properties gifted by family members, the income is treated as the recipient's income for tax purposes. This treatment applies regardless of whether the property was gifted by a family member or an unrelated person, ensuring consistent taxation of rental income regardless of the transfer mechanism. The latest tax provisions continue to maintain this treatment while providing additional clarity on gift taxation rules.
As reported by Upstox Securities, commission income from rental properties is subject to specific taxation rules. Commission income received by individuals from rental properties is treated as business income and taxed accordingly. However, when commission income is received by HUFs from rental properties, it is treated as HUF income, which may result in tax savings due to lower tax rates applicable to HUFs. This distinction between individual and HUF treatment applies specifically to commission income from rental activities, with the latest tax framework maintaining these preferential rates for family-owned businesses. A similar issue can arise with commission income, where commission can form part of HUF income when the business is genuinely carried out through an organised business structure belonging to the HUF. However, if the commission is earned primarily through the personal efforts, skills or services of the Karta or another individual member, it cannot automatically be treated as HUF income.
The tax treatment can be different when the HUF subsequently invests the rental income it has received. The original rental income remains subject to the applicable clubbing provisions and is taxable in the hands of the individual who owns the property. However, income that the HUF subsequently earns from investments made out of that amount is not subject to the same clubbing treatment. This distinction is important because the tax treatment of the original income and the income generated from its subsequent investment can be different. The key takeaway is that merely routing money through an HUF bank account does not change who is liable to pay tax on that income, with ownership of the underlying property remaining the key factor in determining tax liability.
