Relatives of an HUF

Gifts of shares above Rs 50,000 are usually taxed. There is one big exception. If the giver is a relative, the gift is not taxed at all.

For an individual, the word "relative" means a fixed, named list. Spouse, children, parents, siblings. A set of in-laws and grandparents. Nothing more.

For a Hindu Undivided Family, the workbook uses a different and much simpler rule.

The workbook states the HUF rule in one short line: every member of an HUF is treated as its relative. There is no separate list to check. Membership in the HUF itself is enough.

This is a genuinely different test from the individual one. For an individual the workbook prints a closed list of specified relatives, which does include the parents' siblings and their spouses — a mausi and her husband, for instance. Three classes are expressly not relatives for this provision: step-brother or step-sister, nephew or niece, and cousins. An HUF skips the list entirely: any of its members can give the gift, and the Rs 50,000 threshold is the only figure that still matters.

Illustrative figures. The Agarwal HUF receives shares worth Rs 8,00,000 as a gift from a cousin of the karta who is also a member of the same HUF.

Had this gift been made to the karta as an individual, a cousin does not appear on the individual's fixed relative list, so the entire Rs 8,00,000 (being well above the Rs 50,000 threshold) would have been taxable as income from other sources in the karta's hands.

Because the gift instead goes to the HUF, and the cousin is a member of that same HUF, the cousin counts as a "relative" of the HUF under this rule, and the entire Rs 8,00,000 gift is exempt from tax.

Chapter 9 (Income from Other Sources), section 9.4.3, "Cases when income is not chargeable to tax," states the HUF member rule immediately after listing the individual's fixed relative table. Expect a question that gives a gift scenario twice — once to an individual, once to an HUF — from the same donor, testing whether the candidate applies the right list.

• "Every member of the HUF" is the entire rule for an HUF — do not try to map HUF members onto the individual's named list of relatives.
• The individual's relative list excludes step-siblings, nephews, nieces and cousins outright; the HUF rule has no such exclusions for its own members.
• The Rs 50,000 aggregate threshold still applies to an HUF exactly as it does to an individual — the relative exemption is what changes, not the threshold.
• A person can be a "relative" of an HUF by membership while not being a "relative" of any individual member under the separate individual list — the two tests are independent.