An HUF is a separate taxpayer with its own basic exemption and slab benefit

A Hindu Undivided Family (HUF) is one of the most underused legal structures in Indian income tax. Under Section 2(31) of the Income-tax Act, 1961, an HUF is listed as a distinct "person", separate from the individuals who make it up. The Income Tax Department's own HUF help page for AY 2026-27 confirms it: an HUF files its own return, holds its own PAN, and is taxed on its own income at the same slab rates a resident individual gets, with its own basic exemption. That single fact — one more taxpayer with a fresh Rs 4,00,000 nil band in the default new regime for FY 2025-26 — is what makes the structure worth understanding before you plan family income.

This tip explains what the statute actually says, walks through a worked example where routing ancestral rent through an HUF cuts tax by roughly Rs 1,30,000 in a single year, and lists the mistakes that get HUF returns picked up in scrutiny.

What the Section Says

Section 2(31) of the Income-tax Act, 1961 defines seven categories of "person", and clause (ii) names the Hindu Undivided Family expressly, alongside individuals, companies and firms. Because it is a separate person, an HUF is a separate assessee: it obtains its own PAN, files its own ITR (usually ITR-2 or ITR-3), and its income is not clubbed with the personal income of the karta or any coparcener merely because they are related.

The rate schedule that applies to an HUF is the same as for a resident individual below 60. For FY 2025-26 (AY 2026-27) the default regime under Section 115BAC(1A) is the new regime, whose slabs run as follows.

An HUF that would rather claim Chapter VI-A deductions can still opt out of Section 115BAC and be taxed under the old regime, whose first Rs 2,50,000 is nil, 5% applies to Rs 2,50,001-5,00,000, 20% to Rs 5,00,001-10,00,000 and 30% above Rs 10,00,000. The old regime is not automatic from AY 2024-25 onward; an eligible HUF must file the prescribed form (Form 10-IEA) before the return due date to choose it, as the Income Tax Department sets out on incometax.gov.in.

Two things do not travel to the HUF, and confusing them is where most planning goes wrong. First, the Section 87A rebate — up to Rs 60,000 in the new regime where taxable income does not exceed Rs 12,00,000, and up to Rs 12,500 in the old regime where income does not exceed Rs 5,00,000 — is available only to a resident individual, not to an HUF. An HUF pays tax from the first rupee above Rs 4,00,000 even at low income. Second, the salary standard deduction (Rs 75,000 in the new regime, Rs 50,000 in the old) belongs to salary earners; an HUF has no salary head, so it never claims it. What the HUF does keep is its own Rs 4,00,000 exemption and the lower slabs, which is the whole point.

Worked Example

Consider Ramesh, the karta of an HUF, whose personal taxable income for AY 2026-27 is Rs 30,00,000 — squarely in the 30% bracket. The family owns an ancestral commercial property that produces net annual value of Rs 6,00,000 in rent after municipal taxes.

If the rent is assessed in Ramesh's personal hands, it stacks on top of Rs 30,00,000 and is taxed at the marginal 30% rate. Income from house property first gets the flat 30% standard deduction under Section 24(a), so Rs 6,00,000 becomes Rs 4,20,000 of taxable income from that head:

Now assume the property is genuinely HUF property — inherited by the family, not gifted by Ramesh personally — and the rent is assessed in the HUF, which has no other income this year. Under the default new regime the HUF's own Rs 4,00,000 nil band absorbs most of the Rs 4,20,000:

The same rent, the same family, produces a tax bill of Rs 1,31,040 in one route and Rs 1,040 in the other — a saving of about Rs 1,30,000 for AY 2026-27, purely because the HUF is a separate assessee with its own exemption and slabs. You can reproduce this comparison for your own figures with the Oquilia income tax calculator and check the regime choice with the old vs new regime calculator. If you want the slab arithmetic broken out band by band, the new regime calculator shows each Rs 4,00,000 tranche separately.

The benefit is capped by the same slabs, of course. Once the HUF's income climbs past Rs 24,00,000 it too pays 30%, and surcharge applies to an HUF exactly as it does to an individual — 10% between Rs 50,00,000 and Rs 1,00,00,000 of income, 15% between Rs 1,00,00,000 and Rs 2,00,00,000, and 25% above Rs 2,00,00,000, with the new regime surcharge capped at 25% even for the highest incomes. The structure is most valuable for the first Rs 12,00,000-15,00,000 of family income that can properly sit in the HUF.

Common Mistakes

Scrutiny of HUF returns tends to turn on the same handful of errors, and each one can undo the whole saving.

Putting your own money into the HUF and calling it HUF income. If the karta transfers his personal funds or a personally owned asset to the HUF without consideration, the clubbing rule in Section 64(2) of the Income-tax Act, 1961 applies: income from that converted property is taxed back in the transferring member's hands, not the HUF's. Genuine HUF income comes from ancestral property, assets received on partition, or gifts to the HUF from persons other than members. In the worked example above the Rs 1,30,000 saving survives only because the property was ancestral; had Ramesh gifted it himself, Section 64(2) would have pulled the rent straight back onto his 30% return.

Claiming the Section 87A rebate on the HUF return. As noted, the rebate of up to Rs 60,000 in the new regime is for resident individuals only. An HUF with taxable income of, say, Rs 6,00,000 cannot zero out its tax the way an individual under Rs 12,00,000 can; it pays on everything above Rs 4,00,000. Software that carries the rebate across from an individual template is a frequent cause of demand notices.

Forgetting Form 10-IEA when the old regime is better. An HUF that invests through instruments giving Chapter VI-A deductions may still prefer the old regime, but from AY 2024-25 the new regime is the default. Without a valid Form 10-IEA filed before the due date under Section 139(1), the return is processed in the new regime and the deductions are disallowed. Note that the deductions an HUF can claim are limited: it can claim Section 80C for qualifying investments and Section 80D for health insurance premiums paid for its members, but it cannot claim Section 80CCD(1B) for the additional Rs 50,000 NPS deduction, which is a personal deduction and in any event is not available in the new regime at all.

Running the HUF PAN without real activity. An HUF that files a return but has no ancestral corpus, no separate bank account, and no independent source of income invites the assessing officer to treat the arrangement as a device. Keep the HUF's bank account, investments and rent receipts distinct from every member's personal accounts, and document the source of the corpus from day one.

FAQ

Does an HUF really get a separate Rs 4,00,000 exemption on top of the karta's own exemption?

Yes. Because Section 2(31)(ii) treats the HUF as a separate person, it has its own basic exemption — Rs 4,00,000 in the new regime for FY 2025-26 — independent of the karta's personal Rs 4,00,000 band. See the entry on tax exemption for how the nil band works.

Can an HUF claim the Section 87A rebate to pay zero tax up to Rs 12 lakh?

No. The rebate of up to Rs 60,000 in the new regime is restricted to resident individuals. An HUF pays tax on income above Rs 4,00,000 with no rebate, as explained in our note on tax rebate.

Which regime applies to an HUF by default for AY 2026-27?

The new regime under Section 115BAC(1A) is the default from FY 2023-24 onward. An eligible HUF wanting the old regime must file Form 10-IEA before the Section 139(1) due date; miss it and the new regime stands.

Can the karta transfer personal shares or cash into the HUF to save tax?

Not effectively. Section 64(2) clubs income from any personal asset converted into HUF property without adequate consideration back to the transferring member. Only ancestral property, partition receipts, and gifts from non-members produce clean HUF income.

Does an HUF pay surcharge?

Yes, on the same thresholds as an individual: 10% above Rs 50,00,000, 15% above Rs 1,00,00,000 and 25% above Rs 2,00,00,000 of income, with the new regime surcharge capped at 25%. Cess is 4% in both regimes.

Can an HUF claim Section 80C and 80D deductions?

Under the old regime an HUF can claim Section 80C up to Rs 1,50,000 for qualifying investments and Section 80D for health insurance of its members. These are not available in the default new regime, so the HUF must file Form 10-IEA to use them.

What if I missed filing the HUF return on time?

The same machinery that applies to individuals applies to an HUF. Depending on the delay you may still file a belated or updated return, or seek condonation; see our explainer on filing after condonation of delay under Section 119(2)(b), and remember the 30-day e-verification clock that decides whether a filed return counts at all.