Taxation of HUF: Income Tax Act, 1961 vs. Income Tax Act, 2025
Taxation of HUF Income Tax Act, 1961 vs. Income Tax Act, 2025 — what stays, what changes, and what it means for your family’s tax planning The Hindu Undivided Family (HUF) has been one of the most trusted tax-planning structures available to Indian families for decades — a separate taxable ‘person’ with its own PAN, its own exemption limit, and its own set of deductions. With India moving from the Income Tax Act, 1961 to the new Income Tax Act, 2025 (effective 1 April 2026), many families are asking a fair question: does my HUF still work the way it used to? The short answer is yes — and this blog walks you through exactly what has been renumbered, what has been genuinely modernised, and what remains untouched. 1. HUF Taxation Under the Income Tax Act, 1961 This is the framework that still governs your return for FY 2025-26 (AY 2026-27), and it continues to apply to every past assessment year and pending dispute even after the new law takes effect. Here is how it works: A recognised, separate taxpayer Under Section 2(31), an HUF is treated as a distinct ‘person’ for tax purposes — separate from its Karta and its members. It holds its own PAN, can open its own bank account, and files its own return, provided it is backed by a proper HUF deed and a genuine source of ancestral property, inheritance, or gifts. Karta: the senior-most member, who manages the HUF’s finances and represents it legally. Coparceners: members who acquire a right in the property by birth and can demand partition. Members: family members (such as a member’s spouse) who share in the family but do not hold coparcenary rights. Slab rates, exemption and rebate An HUF is taxed on the same slab rates as an individual, with its own basic exemption of ₹2,50,000 under the old regime. Crucially, the Section 87A rebate — which can zero out tax for resident individuals with modest incomes — is not available to an HUF, so this is one planning point where an HUF and its Karta genuinely differ. Deductions the HUF can claim in its own right Under the old regime, an HUF gets an independent set of Chapter VI-A deductions, separate from what its individual members claim on their own returns: Section 80C: up to ₹1.5 lakh for life insurance, PPF, ELSS and similar investments made in the HUF’s name. Section 80D: health insurance premiums for HUF members. Section 24(b): home loan interest — up to ₹2 lakh for a self-occupied property, uncapped for a let-out one. These deductions are only available if the HUF opts for the old regime; the default new-regime slabs (introduced by the Finance Act, 2026) apply if no deductions are claimed. Clubbing and partition — the two guardrails Clubbing (Section 64(2)): if a member transfers their own self-acquired property to the HUF without adequate consideration, the income from that asset is taxed back in the transferor’s hands, not the HUF’s — this stops families from shifting income into the HUF purely to save tax. Partition (Section 171): only a complete partition is recognised for tax purposes. Any partial partition claimed after 31 December 1978 is disregarded, and the HUF continues to be assessed as undivided until the Assessing Officer formally records the partition. Property division on a recognised partition is also not treated as a ‘transfer’ under Section 47, so no capital gains tax arises purely on account of the split. Filing and audit An HUF cannot use the simple ITR-1; depending on its income sources it files ITR-2, ITR-3 or ITR-4. A tax audit under Section 44AB becomes mandatory once business turnover crosses ₹1 crore (or ₹10 crore where at least 95% of receipts and payments are digital). 2. What Changes Under the Income Tax Act, 2025 The new Act takes effect from 1 April 2026 and governs income from FY 2026-27 (AY 2027-28) onward. FY 2025-26 returns, and every past assessment, continue exactly as before under the 1961 Act — so nothing about the return you are filing this season changes because of this new law. A leaner, renumbered statute — not a new tax philosophy The headline change is structural rather than substantive. The Act has been compressed from well over 700 sections to 536 sections, organised across 23 chapters and 16 schedules, with plain, sequential numbering — so references like ‘80C’ or ‘44AB’ give way to a single running number. The stated goal is to cut litigation and make the law easier to navigate, for professionals and Karta alike, not to rewrite how Hindu law concepts are taxed. One less date to track: the ‘Tax Year’ The long-standing ‘Previous Year’ / ‘Assessment Year’ distinction is replaced by a single, unified Tax Year — simply the financial year in which income is earned and reported. For an HUF’s compliance calendar this is a welcome simplification rather than a substantive change. HUF stays a first-class taxpayer The new default (simplified) tax regime under Section 202 explicitly lists HUFs — alongside individuals, associations of persons and bodies of individuals — as eligible assessees. The slab structure carried forward from the Finance Act, 2026 stays the same for an HUF as for an individual: Income Slab Rate Up to ₹4,00,000 Nil ₹4,00,001 – ₹8,00,000 5% ₹8,00,001 – ₹12,00,000 10% ₹12,00,001 – ₹16,00,000 15% ₹16,00,001 – ₹20,00,000 20% ₹20,00,001 – ₹24,00,000 25% Above ₹24,00,000 30% The rebate mechanism is retained under Section 156 (up to ₹60,000 where total income does not exceed ₹12 lakh), mirroring the old Section 87A. As under the 1961 Act, this rebate has historically been reserved for resident individuals, so HUFs should plan on the same basis as before rather than building it into projections. The core Hindu-law concepts are renumbered, not removed Based on the sections mapped so far between the two Acts, the substantive protections that matter most to an HUF continue — just under new numbers: What it covers 1961 Act 2025 Act Independent