A Hindu Undivided Family (HUF) is a separate “person” under the Income-tax Act. It can obtain its own PAN, file ITR-2/3, and (by default) is taxed under the new regime of section 115BAC, though it may opt for the old regime. Key HUF tax levers include Chapter VI-A deductions (80D, 80DDB, 80G), capital-gains rollovers (sections 54/54F), and gift rules (56(2)(x)). Formation is simple: execute an HUF deed, get a PAN, open a bank account, and fund a legitimate corpus. (Indian Kanoon, Income Tax India, Income Tax Department)
What is an HUF and who can create it?
- Definition: An HUF is expressly recognized as a separate “person” for tax purposes under section 2(31) of the Income-tax Act, distinct from its members. (Indian Kanoon)
- Eligible families: Traditionally Hindus, but Indian tax law also recognizes Jains, Sikhs and Buddhists for HUF taxation. (This position is reflected across official and practitioner guidance.) (The Economic Times)
- Women’s rights: Since the Hindu Succession (Amendment) Act, 2005, a daughter is a coparcener by birth with the same rights and liabilities as a son (Section 6). Delhi High Court has affirmed that the senior-most female can be Karta. (PRS Legislative Research, SCC Online)
Tax regimes applicable to HUFs (2025)
- Default new regime: From AY 2024-25, the new regime under section 115BAC is the default for Individuals/HUFs/AOP/BOI/AJP. You can opt out and use the old regime if that’s better for you. (Income Tax Department)
- ITR forms:
- ITR-2 – for Individuals/HUFs not having business/professional income.
- ITR-3 – for Individuals/HUFs having business/professional income.
- ITR-4 (Sugam) – presumptive business (44AD/44ADA/44AE) for eligible residents including HUFs. (Income Tax Department)
Tip: Under the new regime, most deductions/exemptions are forgone; under the old regime you can still use 80C/80D/24(b)/etc. Evaluate both annually before filing Form 10-IEA (where required) and your return. (Income Tax Department)
HUF: Tax benefits (with India-specific nuances)
1) Deductions under Chapter VI-A (selected high-impact ones)
- 80D (Health insurance): Available to HUF for premiums/medical expenditure for any member; higher limits apply for senior-citizen members. The tax department’s 80D tool explicitly includes HUF. (Income Tax India)
- 80DDB (Specified diseases): Available to individuals or HUF for actual treatment costs (subject to conditions and limits). (Covered under Ch. VI-A guidance.) (Income Tax India)
- 80G (Donations): HUFs may claim approved donation deductions, subject to qualifying institutions and limits. (Standard CBDT treatment.) (Income Tax India)
- 80C (Old regime only): Section text clearly says “an assessee, being an individual or a Hindu undivided family” is eligible. Commonly usable for life-insurance premia on members and ELSS (not PPF in HUF’s own name—see below). (Taxsutra, Income Tax India)
Important: PPF accounts cannot be opened by HUFs since 13 May 2005; older HUF PPFs could not be extended beyond their original maturity. Courts and official scheme documents reflect this. (nsiindia.gov.in, Indian Kanoon)
2) Capital-gains rollovers
- Section 54 (sale of a residential house → buy another house) and Section 54F (sale of any long-term asset → buy a residential house) are available to Individuals and HUFs. Use within prescribed timelines; real-estate jurisprudence around “one house” and timelines applies. (UJA, Income Tax India)
3) Gifts and clubbing
- Gifts received by HUF: Exempt if received from a relative, and for HUF, “relative” means any member of that HUF (Section 56(2)(x) FAQs). Gifts from non-relatives over ₹50,000 are taxable. (Income Tax India)
- Assets transferred by a member to HUF: Income arising therefrom is clubbed back to the transferor under section 64(2)—a common pitfall when “converting” self-acquired assets into HUF property. (Income Tax India)
- Gifts from HUF to a member: Treatment has seen litigation; positions differ across rulings. Don’t rely on blanket exemption without advice; document purpose and consider section 10(2)/case law in facts-and-circumstances. (PwC, TaxGuru)
4) Housing-related tax
- If a house is owned by HUF and used as self-occupied, section 24(b) interest limits etc. apply at the entity level under the old regime (subject to usual conditions). (Standard treatment under the Act.) (Income Tax India)
5) Business & remuneration
- HUFs running a business can pay reasonable remuneration to working members for genuine services; deduction is subject to section 40A(2) scrutiny. Keep written agreements and benchmarking. (TaxTMI, ClearTax)
How to form an HUF (practical, compliant steps)
- Create a written HUF deed
- Put on appropriate stamp paper (state-wise), stating the name of the HUF, date of creation, Karta, members/coparceners, and initial capital (corpus) source (e.g., gifts from members/relatives, inheritance). Attach a declaration by Karta. (Good practice; not mandated by the Act but helps KYC.) (Reserve Bank of India)
- Obtain PAN (Form 49A)
- Apply in the HUF’s name with Karta as signatory; PAN utilities and instructions explicitly list HUF as an applicant class. Keep deed, address proof and Karta ID ready. (Income Tax India, Protean eGov Technologies)
- Open a bank account
- Follow RBI KYC norms for non-individuals; banks will ask for PAN (in HUF name), deed, Karta KYC, and member list/resolution. (Reserve Bank of India, ICICI Bank)
- Fund the corpus lawfully
- Use member/relative gifts (exempt under 56(2)(x)), inheritance, or partition from a bigger HUF. Avoid injecting a member’s self-acquired assets without considering section 64(2) clubbing risk. (Income Tax India)
- Start accounting & compliance
- Maintain separate books and bank. Choose new vs old regime annually, then file ITR-2/ITR-3/ITR-4 as applicable. (Income Tax Department)
Governance essentials (often missed)
- Partition rules: Only total partition is recognized for income-tax purposes; partial partitions after 31-12-1978 aren’t recognized (section 171). Plan exits accordingly. (Income Tax India)
- Salary income ≠ HUF income: Members’ employer salary is their individual income—HUF cannot “absorb” it. (Classical treatment re-affirmed across guidance/case law.) (itatonline.org)
- PPF caution: Do not open new PPF in HUF name; contributions to a member’s individual PPF may give that individual an 80C claim, not the HUF. (nsiindia.gov.in)
Worked example (old vs new regime decision)
Scenario: Endovia Family HUF has ₹12,00,000 of rental + interest income in FY 2025-26.
- New regime (default): No 80C/80D; tax computed at 115BAC slabs + cess.
- Old regime (opt-in): HUF pays ₹30,000 health insurance for members (80D eligible) and ₹1,20,000 ELSS (80C eligible). Total Chapter VI-A = ₹1,50,000. If there’s also section 24(b) interest on self-occupied HUF property, that further reduces income (subject to limits). Where aggregate deductions are meaningful, the old regime can edge out—run both computations before filing. (Income Tax India, Taxsutra)
FAQs (for quick voice/search snippets)
1) Can a daughter be Karta of the HUF?
Yes. Post-2005 amendment and Delhi High Court rulings, the senior-most female coparcener may be Karta. (PRS Legislative Research, SCC Online)
2) Which ITR should an HUF use?
ITR-2 if no business/profession income; ITR-3 if there is; ITR-4 for eligible presumptive cases. (Income Tax Department)
3) Are gifts to an HUF taxable?
Gifts from members (relatives) are exempt; gifts from non-relatives over ₹50,000 are taxable to the HUF. (Income Tax India)
4) Can an HUF claim 80C?
Yes under the old regime—the section text covers “individual or HUF.” ELSS and life-insurance premiums on members are common routes; PPF in HUF name is not allowed post-13-May-2005. (Taxsutra, nsiindia.gov.in)
5) What happens on HUF partition?
Only total partitions are recognized by the tax department; after recognition, members are taxed individually on their respective assets/income. (Income Tax India)
Compliance checklist (copy-paste)
- HUF deed, member list, Karta declaration ✅
- PAN obtained in HUF name; separate bank a/c ✅ (Income Tax India)
- Corpus funded (gift from members/relative, inheritance)—document sources ✅ (Income Tax India)
- Choose new vs old regime each year; file Form 10-IEA where required ✅ (Income Tax Department)
- Maintain books; scrutinize related-party payments (40A(2)) ✅ (TaxTMI)
- Avoid PPF in HUF name; review clubbing risks under 64(2) ✅ (nsiindia.gov.in, Income Tax India)
Bottom line for Indian investorsA well-run HUF can legally split family income into a separate tax entity and unlock specific deductions and capital-gains rollovers, but you must respect gift/clubbing rules, partition restrictions, and KYC/filing hygiene. For families with rental income, legacy assets, or a family business, an HUF remains a powerful—yet technical—tool. (Income Tax Department, Income Tax India)