HUF Tax Benefits: What You Save and Where It Stops
An HUF is taxed as a separate person, so it gets its own nil slab: Rs 4 lakh in the new regime and Rs 2.5 lakh in the old one for FY 2025-26. That is the main benefit. The limits are just as real: no rebate, few deductions in the new regime, and clubbing of income.
- The saving comes from one thing: family income is taxed on a second PAN with its own slabs, instead of being stacked on top of your salary.
- An HUF gets no rebate. An individual in the new regime can pay nil tax up to Rs 12 lakh. An HUF starts paying after Rs 4 lakh.
- The Rs 1.5 lakh deduction for investments and the health insurance deduction are available to an HUF only in the old regime.
- Money or property you move from your own name into the HUF keeps getting taxed in your hands. This is called clubbing.
- You cannot split off one asset or one member for tax. Partial partition has not been recognised since 31 December 1978.
In this guide
What are the tax benefits of an HUF?
An HUF (Hindu Undivided Family) is a family that the tax law treats as one taxpayer, with its own PAN and its own return. If you are new to the idea, start with what an HUF is. The benefits below are from the Income Tax Department's page for HUFs for FY 2025-26, which is the return you file as AY 2026-27.
| Benefit | What the HUF gets | The catch |
|---|---|---|
| Own nil slab | No tax up to Rs 4 lakh in the new regime, Rs 2.5 lakh in the old regime | Works only on income that truly belongs to the HUF |
| Own slab ladder | New regime: 5% from Rs 4 lakh to Rs 8 lakh, 10% up to Rs 12 lakh, 15% up to Rs 16 lakh, 20% up to Rs 20 lakh, 25% up to Rs 24 lakh, 30% above | No rebate for an HUF |
| Investment deduction | Up to Rs 1,50,000 a year (section 80C) | Old regime only |
| Health insurance for members | Up to Rs 25,000, or Rs 50,000 if the insured member is 60 or older (section 80D) | Old regime only |
| Home loan interest | Up to Rs 2 lakh on a self-occupied house | Old regime only |
| Gifts from members | A gift from a member of the HUF is not taxed as the HUF's income | The income it earns may be clubbed, as explained below |
A 4% health and education cess is added to the tax in both regimes. The new regime is the default. To use the old one, the HUF has to opt out. Compare them in old versus new regime.
Which year and which Act do these numbers belong to?
Income earned up to 31 March 2026 is taxed under the Income-tax Act, 1961. Income earned from 1 April 2026, which the new law calls tax year 2026-27, falls under the Income-tax Act, 2025. The rules for HUFs carry over, but the section numbers are new.
| Rule | 1961 Act (up to FY 2025-26) | 2025 Act (from 1 April 2026) |
|---|---|---|
| New regime slabs | Section 115BAC | Section 202 |
| Rs 1.5 lakh investment deduction | Section 80C | Section 123 |
| Clubbing when a member converts own property | Section 64(2) | Section 99(3) |
| Tax on gifts above Rs 50,000 | Section 56(2)(x) | Section 92 |
| Partition of an HUF | Section 171 | Section 315 |
| Rebate, for resident individuals only | Section 87A | Section 156 |
The new regime slab table in section 202 is the same as the FY 2025-26 one. We could not open an official page for the old regime slabs and cess for tax year 2026-27, so check those on the department's site before you plan for the current year.
A worked example with numbers
The Iyer family sold ancestral land years ago and kept the money in fixed deposits. The deposits earn Rs 9,00,000 a year. Mr Iyer, the Karta (the family member who manages the HUF), already earns more than Rs 24 lakh from his job, so every extra rupee in his own return is taxed at 30%.
- If the interest were taxed in his hands: Rs 9,00,000 at 30% is Rs 2,70,000. Add 4% cess of Rs 10,800. Total Rs 2,80,800, before any surcharge.
- In the HUF, new regime: nil up to Rs 4 lakh, 5% on the next Rs 4 lakh is Rs 20,000, and 10% on the last Rs 1 lakh is Rs 10,000. Tax Rs 30,000, cess Rs 1,200. Total Rs 31,200.
- In the HUF, old regime with Rs 1,50,000 invested under 80C: taxable income Rs 7,50,000. Tax is Rs 12,500 plus Rs 50,000, which is Rs 62,500. Cess Rs 2,500. Total Rs 65,000.
So the HUF pays Rs 31,200 where Mr Iyer would have paid Rs 2,80,800. Now see the limit in the same example. An individual with only Rs 9,00,000 of income would pay nil in the new regime because of the rebate. The HUF still pays Rs 31,200. An HUF helps when the members are already in high slabs. It does little for a family whose members are below Rs 12 lakh each.
Where do the benefits stop?
- No rebate. The rebate section speaks only of an individual resident in India. An HUF is not one.
- Few deductions in the new regime. Section 202 computes income without most deductions and without interest on a self-occupied house. The 80C and 80D rows in the table above disappear.
- Clubbing. If you put your own house, shares or savings into the HUF without getting full value for it, the income from that asset is still treated as yours. Why does this rule exist? Without it, anyone could shift salary savings to a second PAN each year.
- Gifts from outsiders. For an HUF, only its members count as relatives. Money gifted by anyone else is taxed as the HUF's income once such gifts cross Rs 50,000 in a year, and then the whole amount is taxed. Money received under a will or by inheritance is not.
- It is hard to close. The tax department treats the family as an HUF until the Assessing Officer records a full partition. A partial partition, where one asset or one member is separated, is ignored and the HUF goes on being taxed as before.
The mistake most families make
They open the HUF, then transfer their own salary savings into it and expect the interest to be taxed in the HUF. It is not. The clubbing rule sends that income straight back to the member's return, and the HUF has saved nothing.
The benefit works on money that belongs to the family in its own right: ancestral property, an inheritance left to the HUF, gifts from members made with a clear record, and whatever the HUF earns on these. Even with a member's gift, ask a tax expert whether clubbing applies before you move the money.
What to do next: list what the family already owns jointly and what it earns. If that income, taxed in your hands, sits in the 20% or 30% slab, an HUF is worth setting up. Our guide on how to create an HUF has the steps.
Sources
- Income Tax Department: tax slabs and deductions for an HUF, AY 2026-27 (checked 12 Nov 2026)
- Income Tax Department: Income-tax Act, 2025, scope and start date (checked 12 Nov 2026)
- Income-tax Act, 2025, section 202: new tax regime for individuals and HUFs (checked 12 Nov 2026)
- Income-tax Act, 2025, section 99: property converted into HUF property (checked 12 Nov 2026)
- Income-tax Act, 2025, section 92: gifts and who counts as a relative (checked 12 Nov 2026)
- Income-tax Act, 2025, section 315: assessment after partition of an HUF (checked 12 Nov 2026)
- Income-tax Act, 2025, section 123: deduction up to Rs 1,50,000 (checked 12 Nov 2026)
- Income-tax Act, 2025, section 156: rebate for resident individuals (checked 12 Nov 2026)
How AprilTax can help
The tax benefit starts with a deed that records the Karta, the members and the source of the HUF's money. A Tax Expert at AprilTax drafts your HUF deed for Rs 1,499 from one online form. The fee is for drafting the deed. Stamp paper, the PAN application and the bank account are separate. Start at HUF deed drafting.
Frequently asked questions
What is the main tax benefit of an HUF?
Does an HUF get the rebate that makes income up to Rs 12 lakh tax free?
Can an HUF claim the Rs 1.5 lakh deduction under section 80C?
Can I transfer my salary savings to my HUF to save tax?
Are gifts received by an HUF taxable?
Can I close an HUF when it stops being useful?
Which section numbers apply now, 1961 Act or 2025 Act?
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