Hindu Undivided Families (HUFs) face significant changes in tax planning for Tax Year 2026-27. While the new default tax regime promises lower tax rates, it comes with a crucial trade-off: the loss of several key deductions and house property benefits. This shift necessitates a careful comparison of the old and new regimes before finalizing tax-saving strategies.
Understanding the Default New Tax Regime for HUFs
Beginning April 1, 2026, the Income-tax Act, 2025, will govern income earned during Tax Year 2026-27. Under Section 202 of this new Act, the new tax regime is the default framework for HUFs. This means that unless an HUF actively opts for the old regime, it will automatically fall under the new structure. Tax experts, such as CA (Dr.) Suresh Surana, emphasize that HUF managers must conduct a thorough comparative analysis of their tax liability under both regimes before making investment or tax-planning decisions.
Key Deductions Lost Under the New Regime
A primary feature of the new tax regime is its streamlined approach, which eliminates many common deductions available under the old system. This includes benefits corresponding to Sections 80C and 80D of the Income-tax Act, 1961 (and their equivalents in the new law). Consequently, investments or expenses typically made for tax-saving purposes, such as life insurance premiums, provident fund contributions, or health insurance premiums, will generally not reduce taxable income under the new regime. HUFs should not assume automatic tax relief for such expenditures.
Impact on House Property Benefits
The new regime also significantly alters tax benefits related to housing. For instance, interest on borrowed capital for a self-occupied house property is generally not deductible. Furthermore, any loss from house property cannot be offset against income from other sources. For HUFs with substantial home loans or those incurring losses from house property, these restrictions could dramatically increase their overall tax burden.
New Tax Slabs for HUFs (Tax Year 2026-27)
The new regime introduces revised income tax slabs:
- Up to Rs 4,00,000: Nil
- Rs 4,00,001 – Rs 8,00,000: 5%
- Rs 8,00,001 – Rs 12,00,000: 10%
- Rs 12,00,001 – Rs 16,00,000: 15%
- Rs 16,00,001 – Rs 20,00,000: 20%
- Rs 20,00,001 – Rs 24,00,000: 25%
- Above Rs 24,00,000: 30%
In addition to these rates, surcharge and a 4% Health and Education Cess will be applied separately. It's important to note that HUFs do not qualify for the tax rebate available to resident individuals under Section 156 of the Income-tax Act, 2025, meaning that income below Rs 12 lakh will not necessarily result in zero tax.
Navigating Regime Switches
The flexibility to switch between tax regimes depends on the nature of the HUF's income. An HUF without business or professional income typically has the option to choose the old regime when filing its return. However, for HUFs with business or professional income, opting for the old regime usually carries continuing implications, with the ability to revert to the new regime generally limited to a single instance, subject to specific conditions.
CA (Dr.) Suresh Surana advises, "HUF managers should prepare a comparative tax computation under both regimes before making investment decisions. The assessment should factor in the value of deductions forgone, house-property provisions and the HUF's income profile, rather than focusing solely on the concessional slab rates."
For Tax Year 2026-27, the old-regime option is exercised through the income tax return under Rule 136 of the Income-tax Rules, 2026, differing from the separate Form 10-IEA process used previously. It is crucial for HUFs to distinguish between Tax Year 2026-27 and Assessment Year 2026-27, as the latter continues to be governed by the Income-tax Act, 1961.