A Hindu Undivided Family (HUF) is a distinct legal entity recognized under Indian tax laws, treated as a separate taxable unit. The tax obligations of an HUF depend on its income sources and residential status. This article provides a comprehensive overview of HUF taxation under the Finance (No. 2) Act, 2024, outlining key aspects such as income computation, deductions, and tax regimes.
Residential Status and Tax Implications
The taxability of an HUF is determined by its place of control and management, along with the residential status of its Karta (the family head).
Classification of Residential Status
Resident HUF:
Ordinarily Resident: Karta has resided in India for at least 2 out of the last 10 years and has been physically present in India for at least 730 days in the last 7 years.
Not Ordinarily Resident: Karta does not fulfill both conditions above.
Non-Resident HUF: If the HUF’s control and management are entirely outside India.
Tax Treatment Based on Residential Status
Resident HUF: Subject to taxation on global income.
Non-Resident HUF: Taxable only on income accrued, received, or deemed to be received in India.
Computation of HUF Income
HUF income is categorized under the following heads:
Income from House Property
Profits and Gains from Business or Profession
Capital Gains
Income from Other Sources
Adjustments Considered:
Clubbing of Income: Income derived from family assets or investments made using HUF funds is clubbed with HUF income.
Set-Off and Carry Forward of Losses: Losses can be adjusted within the same head (intra-head adjustment) or across different heads (inter-head adjustment). Unutilized losses can be carried forward for future set-offs.
Deductions: Applicable under Chapter VI-A.
HUF Tax Slab Rates
Old Tax Regime (Pre-115BAC)
| Total Income (₹) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
New Tax Regime (Section 115BAC) – FY 2024-25
| Total Income (₹) | Tax Rate |
| Up to 3,00,000 | Nil |
| 3,00,001 – 7,00,000 | 5% |
| 7,00,001 – 10,00,000 | 10% |
| 10,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
New Tax Regime (Section 115BAC) – FY 2025-26
| Total Income (₹) | Tax Rate |
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Note: HUFs are not eligible for rebate under Section 87A.
Surcharge and Cess
| Income Range (₹) | Surcharge (Old Regime) | Surcharge (New Regime) |
| Up to 50 lakh | Nil | Nil |
| 50 lakh – 1 crore | 10% | 10% |
| 1 crore – 2 crore | 15% | 15% |
| 2 crore – 5 crore | 25% | 25% |
| Above 5 crore | 37% | 25% |
Health and Education Cess: Additional 4% on total tax liability.
Alternative Minimum Tax (AMT) for HUFs
HUFs availing certain deductions under Chapter VI-A, Section 10AA, or Section 35AD are subject to Alternative Minimum Tax (AMT) if their adjusted total income exceeds ₹20 lakh.
AMT Rate: 18.5% (9% for IFSC units).
Taxation of HUF Partition
Complete Partition:
Income earned before partition is taxed in the hands of the HUF.
Post-partition, individual members are taxed separately.
Partial Partition:
Not recognized for tax purposes after 31-12-1978.
The HUF continues to be taxed on undivided assets.
Conclusion
The taxation framework for HUFs offers significant advantages for Hindu families managing joint assets. With the new tax regime becoming the default from AY 2024-25, HUFs must evaluate whether continuing with the old regime is beneficial based on their eligible deductions and exemptions. A well-structured tax strategy, including AMT considerations, loss adjustments, and income clubbing provisions, can help optimize tax liability while ensuring compliance with evolving tax laws.
