Should you transfer fixed deposits to a HUF account?

I am a retired bank employee. My total annual income is around 15 lakhs, which is comprised of a pension, LIC annuity, rent on house property, and interest on fixed deposit. I get the advantage of one per cent being ex-staff and half per cent being a senior citizen. I am also getting 8.2% on SCSS. If I open a HUF and transfer my fixed deposits to my HUF account, will I continue to get the extra benefit of 1.5%? Is it advisable to open a HUF account? If so, how should I bifurcate my income to claim tax benefits?

Banks offer higher interest rates on fixed deposits to ex-employees and senior citizens. Your HUF cannot be treated as an ex-employee or a senior citizen, so the benefit of higher interest will not be available to your HUF.

Gifts received by an individual or a HUF are not treated as income as long as the aggregate value of gifts from all sources does not exceed fifty thousand rupees in a year. Still, once the threshold is breached, the full value of gifts becomes taxable as income. However, gifts received from specified relatives are not treated as income, irrespective of the amount of gift received from such relatives. Members of a HUF are treated as relatives; therefore, there will not be any tax liability for your HUF at the time of transfer of fixed deposits.

Retired bank employee looks at HUF benefits for FD rates and tax advantages

Though the gifts received by a HUF from its members are not treated as income of the HUF, any income earned by the HUF on assets so transferred are clubbed in the hands of such member year after year till a full partition of the HUF assets take place. Even after full partition, clubbing will continue to apply concerning a share of such assets allotted to the member's spouse. The clubbing will continue to apply even if the asset is converted from one asset to another asset. The clubbing applies to the income generated from the asset's value transferred. Still, income on the investments made from such income already clubbed will not be subjected to clubbing provisions.

So by transferring your fixed deposit to your HUF, you will not be able to reduce your tax liability as the income arising to HUF will continue to be taxed in your hands. So, prima facie, the purpose of saving tax will not be served by transferring the fixed deposit to your HUF. However, you can make gifts of money to your adult children who are taxed at a lower rate than yours, thus reducing your overall tax liability.

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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his X handle.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.