Can you gift equity mutual funds to your HUF or daughter to save LTCG tax? What investors should know

Today's Q&A explains such details in response to a query by a reader.

As per the tax laws if the aggregate value of all the gifts received by a person from all the sources during the financial year exceed ₹50,000 whole of the value of such gifts is treated as income of the recipient and he is required to pay tax on such gifts. This provision making the gifts taxable exceeding the threshold of ₹50,000 in a year in the hands of the recipient has some exceptions like assets received as inheritance or as gifts received from some specified relatives.

As per the clubbing provisions in respect of gifts made by members to its HUF, any income which arises to the HUF in respect of the gifted asset is required to be included in the hands of the member who has gifted such asset. The clubbing provision will continue to apply even if the asset transferred changes its form till the HUF is fully partitioned. Even after full partition, the clubbing provision will still apply in respect of share of such assets allocated to your spouse.

Though you can gift your mutual fund investments to your HUF which can redeem immediately but the capital gains in respect of the investment so transferred will be included in your hands and in future the clubbing will continue to apply in respect of amount of cost allocated to the investment so transferred.

In case you gift these investments to your daughter there are no tax implication as parents are included in the definition of specified relatives for this purpose and there are no clubbing provisions applicable in respect of assets gifted to major children under the income tax laws.