HUF Taxation: How to Save Taxes Using Hindu Undivided Family (HUF)?

A Hindy Undivided Family is a unique tax concept which allows a family to be treated as a separate entity from taxation perspective. Using HUF, taxes can be saved up to 30% in some cases. 

The following blog explains in detail, the tax treatment of HUF entity, and various tax saving techniques using HUF.

What is a HUF?

• HUF stands for Hindu Undivided Family. 
• Any hindu, buddhist, jain or sikh family can form a HUF as a separate entity, separating the family's common assets and businesses from its members.
• All the members of the family are treated as HUF members, and the members who have acquired their right in the family by birth are called coparceners.
• HUF is treated as a separate person under the Income Tax Act.

HUF Tax Benefits

• HUFs enjoy the same income tax slabs as individuals, with a basic exemption of Rs. 2.5 lakh (old regime) and Rs. 4 lakh (new regime for FY 2025-26). 
• As we already know, the HUF is treated as a separate person for tax purposes. 
• Therefore, income tax slabs, deductions limit are separate for HUFs, apart from the members of HUF. 
• Hence, a part of income can be split from the members and shown as HUF income as appropriate, reducing overall tax liability.

Key tax benefits for HUF include:

• Section 80C: Up to ₹1.5 lakh deduction on PPF, ELSS, life insurance, etc.
• Section 80D: Deduction for health insurance premiums paid for HUF members.
• Section 80G: Deductions on eligible donations made by HUF.
• Home Loan: Deduction on interest paid on housing loan.
• Capital Gains: Exemptions under Sections 54, 54F, and 54EC on reinvestment of long-term capital gains.

How to Save Taxes by Forming HUF?

Let’s understand how an HUF is taxed with an example – 

Mr Rajesh Chopra decides to start an HUF with his wife, son, and daughter as members. The property held by Mr. Chopra earns an annual rent of Rs. 15 lakh which was transferred to the HUF. Mr. Rajesh Chopran Has an income from salary of Rs. 20 lakh. 

By creating an HUF, Mr. Chopra can save tax under the New Tax Regime for FY 2025-26 as follows:

Summary comparison of taxes, with and without splitting the income to HUF:

Due to this tax arrangement, Mr. Chopra saved Rs. 2,52,200 in taxes. The HUF paid Rs. 46,800 tax on the rental income, as the rebate u/s 87A is not available for HUF.

HUF Tax Slabs

The HUF tax slabs are the same as individual taxpayers under both the Old Regime and New Regime, irrespective of whether the HUF is a resident or not.

New Tax Regime Slabs 

Under the new regime, the tax slabs of HUF for the financial year 2025-26 are as follows: 

Old Tax Regime Slabs

Under the old tax regime, the slab rates of the HUF are as follows. 

Note: Relaxed slab rates applicable for resident senior and super senior citizens are not applicable for HUF.

Surcharge and cess will be applicable.

Rebate

It is popularly believed that rebate can be claimed if the taxable income of HUF is below Rs. 12 lakhs under the new regime and Rs. 5 lakhs under the old regime. But it is not true. Rebate is not available for HUFs. It can only be claimed by individuals who are resident.

HUF Residential Status

The residential status of an Hindu Undivided Family (HUF) depends on whether it is controlled from India or not.

Resident HUF

• An HUF is Resident in India if its controlled and managed from India during the previous year. 
• Partial control is also considered as control from India.
• The control criteria is determined predominantly by where Karta lives during the financial year.
• If the Karta of an Hindu Undivided Family (HUF) is resident and ordinarily resident in India, then the HUF is also treated as resident and ordinarily resident. 
• However, if the Karta is resident but not ordinarily resident, then the HUF is considered resident but not ordinarily resident.

Non - Resident HUF

An HUF is Non-Resident if its control and management are wholly situated outside India during the previous year.

The Bottom Line: The residential status of HUF depends on the residential status of Karta, when it is controlled or managed from India. Otherwise, the HUF is always considered a Non-Resident.

Final Word

An HUF is not only a separate legal entity which helps efficient segregation of the family members’ income from the family’s collective income, but also a very efficient tax planning strategy if used wisely. Though it provides significant tax savings, false disclosure of family member’s income as HUF income would result in adverse consequences like tax notices, penalties, etc.