Tax planning guides HUF tax planning
HUF Tax Planning: A Second Set of Tax Allowances for Your Family
A Hindu Undivided Family (HUF) is a separate taxpayer with its own PAN, bank account and tax return. Income from HUF assets is taxed in the HUF, with its own slabs and exemptions, on top of each member's personal allowances.
Who can form an HUF?
Hindu, Jain, Sikh and Buddhist families, usually from marriage. It needs at least two members. The Karta (often the eldest member, and a woman can be Karta) manages it. Sons and daughters are coparceners by birth.
Worked example: ₹8 lakh a year of rent or interest
| Taxed in father's name (30% slab) | Earned by the family HUF | |
|---|---|---|
| How it is taxed | The full ₹8 lakh at 30% plus cess | First ₹4 lakh nil; next ₹4 lakh at 5% plus cess |
| Yearly tax | ₹2,49,600 | ₹20,800 |
This works only when the income comes from HUF assets. Figures use the new tax regime for FY 2026-27.
HUF and mutual funds
An HUF invests through its own PAN and KYC, with the Karta signing. It has its own ₹1.25 lakh of tax-free long-term equity gains each year, and if it has little other income, its unused basic exemption can also absorb gains from equity funds (for a resident HUF).
Where the HUF's money can come from
| Source | Allowed? | Tax effect |
|---|---|---|
| Ancestral property or its sale proceeds | Yes | Income taxed in the HUF |
| Inheritance or a will in favour of the HUF | Yes | Income taxed in the HUF |
| Gifts from relatives, such as grandparents or in-laws | Yes | Gift tax-free; income taxed in the HUF |
| Wedding gifts received by the family | Yes | Income taxed in the HUF |
| A member moving his own money into the HUF | Avoid | Income clubbed back with that member |
Setting it up
- Sign an HUF deed naming the Karta and members.
- Apply for a PAN in the HUF's name.
- Open a bank account for the HUF; all HUF money flows through it.
- Complete HUF KYC; we open mutual fund folios in the HUF's name.
- File the HUF's own income tax return every year.
Drawbacks to weigh
- Hard to close: only a full partition among all members ends an HUF for tax purposes.
- Shared ownership: assets belong to the whole family, including daughters and future children.
- Extra paperwork: a separate PAN, bank account, records and return every year.
Common questions
Can an HUF claim the ₹12 lakh tax-free limit?
No. The Section 87A rebate is available only to resident individuals. An HUF pays tax from ₹4 lakh upward at the normal slab rates.
Can I put my salary savings into my HUF?
You can, but income from money a member transfers to the HUF is clubbed back with that member, so it does not save tax.
Please note: This guide is investor education, not tax or investment advice. Figures are illustrations using assumed returns and are not guaranteed. Tax rules shown apply for FY 2026-27 (tax rules as of September 2026) and can change; please confirm your own situation with a chartered accountant. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.
Want this applied to your own numbers?
Book a free review with Lalit Singh Dulawat. Call or WhatsApp +91 87410 96454 or email lalit@dulawatfinserve.com.