Taxation of HUF

A Hindu Undivided Family (HUF) in India is a separate taxable entity under the Income-tax Act with its own PAN, basic exemption of ₹3 lakh, and slab rates identical to an individual. A Hindu, Sikh, Jain, or Buddhist family forms an HUF via a written deed, obtains PAN through Form 49A, and operates a dedicated bank account under the Karta. The HUF can earn rental, business, capital gains, and investment income, and claim Section 80C, 80D, 80G and housing-loan interest deductions under the old regime.

Mayank Wadhera

Published: 13 Jun 2023

Updated: 16 May 2026

3 min read

The Hindu Undivided Family (HUF) remains one of the most underutilised tax-planning structures in India. Recognised as a separate taxable entity under the Income-tax Act, an HUF gets its own PAN, its own basic exemption, and its own slab rates — letting Hindu, Sikh, Jain, and Buddhist families split income legally and reduce overall tax outgo. Union Budget 2026 has preserved every HUF benefit while tightening reporting on related-party transactions.

Formation and Legal Foundation

An HUF comes into existence automatically on the birth of a son or marriage of the family head in a joint Hindu family. To make it a tax entity, you need a written HUF deed, a separate PAN obtained via Form 49A, and a dedicated bank account in the HUF's name. The Karta (typically the eldest male member, or the eldest female member post the 2016 Supreme Court ruling) operates the HUF.

Tax Rates and Basic Exemption

An HUF is taxed at the same slab rates as an individual under both the old and new tax regimes. For AY 2027-28 under the default new regime: nil up to ₹3 lakh, 5% from ₹3-7 lakh, 10% from ₹7-10 lakh, 15% from ₹10-12 lakh, 20% from ₹12-15 lakh, and 30% above ₹15 lakh, with Section 87A rebate up to ₹7 lakh total income. Surcharge and cess apply identically to individuals.

Income that an HUF Can Earn

An HUF can earn income from:

Ancestral property, rental income, and capital gains from inherited assets.
Investments made from HUF funds in equity, mutual funds, FDs, bonds, and PPF (HUF cannot open a fresh PPF, but can hold inherited ones).
Business carried on by the HUF.
Gifts received from members and relatives within Section 56(2)(x) exemptions.
Profits transferred from a member's self-acquired property thrown into the family pool (subject to Section 64(2) clubbing rules).

Deductions Available to an HUF

An HUF can claim Section 80C (₹1.5 lakh — LIC, ELSS, principal repayment, FD), Section 80D (health insurance for members), Section 80G (donations), Section 80TTA (savings interest up to ₹10,000), and Section 24 (interest on housing loan up to ₹2 lakh) under the old regime. Under the new regime, only standard deduction and limited deductions apply, mirroring individual rules.

Clubbing Provisions Under Section 64(2)

If a member converts personal property into HUF property without consideration, the income from such property continues to be clubbed in the member's hands. This is one of the most common pitfalls. To create a clean HUF, build the corpus through gifts from relatives outside the HUF, ancestral inheritance, or income earned by the HUF on its own investments.

ITR Filing for HUF

An HUF files ITR-2 if income includes capital gains or multiple properties, ITR-3 if it carries on a business or profession, or ITR-4 Sugam if it opts for presumptive taxation under Section 44AD/44ADA. The HUF's PAN and the Karta's digital signature are used to file. Due dates mirror individual deadlines — 31 July 2027 for non-audit and 31 October 2027 for audit cases for AY 2027-28.

Conclusion

A well-structured HUF can save a Hindu family ₹50,000 to ₹2 lakh annually in tax through the extra basic exemption and parallel slab structure. The trick is to populate the HUF with genuinely separate sources — ancestral property, gifts from outside, and income reinvested within. Maintain meticulous books, file ITRs on time, and treat the HUF as a distinct economic entity. Done right, it is the cheapest tax shelter Indian law still permits.

Frequently Asked Questions

Who can create an HUF in India?

An HUF can be created by Hindu, Sikh, Jain, and Buddhist families. The HUF comes into existence automatically on the marriage of the family head, but to make it a tax entity you need a written deed, a separate PAN, and a dedicated bank account. The eldest male or female member acts as the Karta.

Can a single person form an HUF?

No. An HUF requires at least two members, including the Karta and at least one coparcener (typically the Karta's spouse or child). After marriage, a husband and wife together can constitute an HUF. The HUF can subsequently grow with the birth or adoption of children.

Does HUF have its own basic exemption?

Yes. An HUF enjoys a separate basic exemption of ₹3 lakh under the default new tax regime (₹2.5 lakh under the old regime) and is taxed at the same slab rates as an individual. This duplicates the exemption benefit at the family level, creating legitimate tax savings.

What income should not be transferred to HUF?

Self-earned income from salary, profession, or business of a member should not be deposited into the HUF account, as Section 64(2) will club it back in the member's hands. The HUF corpus should come from ancestral inheritance, gifts from relatives outside the HUF, or income reinvested by the HUF itself.