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 80C-style deduction | Section 80C | Section 123 |
| Rebate for small taxpayers | Section 87A | Section 156 |
| Tax audit threshold | Section 44AB | Section 63 |
| Partition not treated as a transfer | Section 47 | Section 70 |
| Clubbing of income (spouse/minor, incl. HUF transfers) | Section 64 | Section 84 |
| Assessment after partition of an HUF | Section 171 | Section 315 |
Independent legal commentary comparing the partition provisions describes ‘substantial structural and substantive continuity’ between the old Section 171 and its 2025 replacement — the requirement of a full partition, joint liability of former members, and disregard of any partial partition claimed after 31 December 1978 are all retained. The clubbing rule under the new Section 84 similarly carries forward the same anti-avoidance logic as the old Section 64. (Final section numbers were settled on enactment, so treat the mapping above as directional rather than a substitute for the gazetted text.)
A few genuine additions
- Virtual Digital Assets: a more detailed, explicit definition of VDAs (cryptographically secured digital assets) is built into the new Act — relevant if your HUF holds crypto or similar assets.
- Staggered filing due dates: return deadlines now range from 31 July for simpler ITR forms up to 30 November for transfer-pricing cases, replacing a more uniform structure.
- Smooth transition: carried-forward losses, unabsorbed depreciation, and MAT/AMT credit built up under the 1961 Act carry through into the new law without being lost.
3. Side by Side: The Two Acts at a Glance
| Feature | Income Tax Act, 1961 | Income Tax Act, 2025 |
| Applies to | FY 2025-26 and all earlier years | FY 2026-27 (AY 2027-28) onward |
| Total sections | 700+ | 536, in 23 chapters |
| Year concept | Previous Year + Assessment Year | Single ‘Tax Year’ |
| HUF recognised as a taxpayer | Yes – Section 2(31) | Yes – retained, explicitly listed under Section 202 |
| HUF slab rates | Same as individuals | Same as individuals (unchanged) |
| 87A / 156 rebate available to HUF | No | No (position expected to continue) |
| Independent 80C-style deduction for HUF | Yes, old regime only | Yes – retained, renumbered (Sec. 123) |
| Clubbing safeguard on gifted property | Section 64(2) | Section 84 (retained) |
| Only full partition recognised | Section 171 | Section 315 (retained) |
| Partition treated as ‘no transfer’ | Section 47 | Section 70 (retained) |
4. What This Means for Your Family, Practically
- Nothing changes for the return you’re filing right now. FY 2025-26 (AY 2026-27) runs entirely on the familiar 1961 Act — same sections, same forms, same deadlines.
- The HUF structure itself is safe. The new Act reorganises and renumbers the law; it does not dismantle the HUF as a planning tool or take away the Karta’s role.
- From FY 2026-27, expect new forms and new section references. ITR utilities will start using ‘Tax Year’ language and the renumbered sections — the underlying compliance rhythm (advance tax, audit thresholds, filing windows) stays conceptually the same.
- Use this transition window well. It’s a good moment to review your HUF deed, confirm PAN and bank records are in order, and revisit whether the old regime’s deductions (80C/123, 80D, 24(b)) still make sense for your HUF once the new default regime applies.
- Keep an eye on CBDT clarifications. As the new Act beds in, expect circulars and updated ITR utilities to fill in the remaining detail — we’re tracking these closely so your HUF’s planning stays a step ahead.
In short: the Income Tax Act, 2025 modernises the language and the layout of the law, but the HUF you know — with its Karta, its coparceners, its own deductions, and its careful partition rules — carries forward largely intact. A short review with your tax advisor before FY 2026-27 begins is all it takes to move into the new law with confidence.
Disclaimer: This article is intended for general informational purposes only and should not be construed as professional, legal, or tax advice. While every effort has been made to ensure accuracy as of the date of publication, applicable laws, rules, and regulations are subject to change. Readers are advised to consult with us or another qualified professional before making any decisions based on this content.