A Complete Guide to HUF Taxation in India (FY 2025-26) 📊

Overview: The Hindu Undivided Family (HUF) is a powerful, distinct tax planning entity under the Income Tax Act, 1961, capable of holding its own PAN and filing separate returns. It allows Indian families and entrepreneurs to create an additional taxable entity, splitting income and potentially yielding significant annual tax savings. This guide covers the complete HUF taxation framework for FY 2025-26, including formation, the enhanced Section 87A rebate, compliance, and strategic planning.

A Hindu Undivided Family constitutes a family unit comprising all persons lineally descended from a common ancestor, including their wives and unmarried daughters. This ancient concept, now codified in modern tax law, operates under specific legal principles:

• Karta: The senior-most member who manages the family’s assets and financial affairs. Following the Hindu Succession (Amendment) Act, 2005, even female coparceners can now serve as Karta, marking a significant shift toward gender equality.
• Coparceners: Family members possessing the birthright to ancestral property. The 2005 Amendment revolutionised this concept by granting daughters equal coparcenary rights “by birth in the same manner as the son” under Section 6, regardless of whether they were born before or after September 9, 2005, as clarified by the Supreme Court in Vineeta Sharma vs. Rakesh Sharma (2020).
• Members: Other family members who become part of the HUF through marriage, such as wives of coparceners, who don’t possess partition rights but are entitled to maintenance and support.
  

Taxation Framework of HUF

Under the Income Tax Act, 1961, a HUF enjoys taxation status equivalent to an individual taxpayer. The HUF can generate income from multiple sources, including business operations, house property, capital gains, and other sources, all of which are taxed at the applicable individual slab rates. This structure creates a powerful tax advantage: families can effectively utilise an additional basic exemption limit (₹3,00,000 under the new regime) separate from each member’s individual tax liability.

💰 Key Tax Benefits of Forming a HUF

Establishing a HUF unlocks multiple strategic tax advantages by creating an additional assessable entity with its own tax slabs and deductions. The Section 10(2) exemption proves particularly valuable – any amount paid to members from HUF income remains completely tax-free in their hands, regardless of the quantum. This provision enables tax-efficient distribution of family wealth without creating additional tax liabilities for recipients.

Table: HUF Tax Benefits Comparison

What are the HUF Tax Rates for FY 2025-26 (AY 2026-27)?

For Financial Year 2025-26, HUFs must choose between two distinct tax regimes, with the new tax regime under Section 115BAC serving as the default option:

🎯 Critical Update: Under the new regime for FY 2025-26, HUFs with income up to ₹12 lakh can claim a rebate of ₹60,000 under Section 87A, effectively making income up to ₹12 lakh tax-free. Old Tax Regime (Optional): HUFs can opt for the old regime by filing Form 10-IEA if they have business income, gaining access to various deductions despite higher base rates. 

How to File ITR for a HUF (AY 2026-27) 📝

A Hindu Undivided Family (HUF) is required to file its Income Tax Return if its gross total income exceeds the basic exemption limit applicable under the chosen tax regime. The selection of the correct ITR form is crucial: ITR-2 is appropriate for HUFs whose income is derived from sources other than business or profession, which includes salary income paid to the Karta or members, house property income, capital gains, and income from different sources. Conversely, ITR-3 must be used by HUFs that have income from a business or profession. This form is mandatory if the HUF maintains books of accounts or opts for any of the presumptive taxation schemes.

Filing Deadlines for AY 2026-27

Is a HUF Still a Relevant Tax-Saving Tool? 💡

Absolutely. Despite evolving tax laws, a Hindu Undivided Family remains one of the most effective legal tax planning instruments available in India. By creating a separate taxable entity with its own basic exemption limit and tax slabs, families can achieve substantial tax savings while building intergenerational wealth. The new ₹60,000 rebate under Section 87A for FY 2025-26 further enhances its attractiveness. However, successful HUF management demands meticulous documentation, strict compliance with Income Tax Act provisions, and strategic planning to maximise benefits across generations.

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Author Bio

Editorial Team  

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.