HUF tax-planning for Tax Year 2026-27: No rebate allowed, no change in tax regime; key points

You may have come across reports that the New Tax Regime is the default tax regime for Hindu Undivided Families (HUFs) from Tax Year (TY) 2026-27. However, this is not a new development for HUFs from TY 2026-27.

Under the Income-tax Act, 1961, the New Tax Regime under section 115BAC(1A) became the default for HUFs from AY 2024-25 itself.

What has changed is that from April 1, 2026, Income-tax Act, 2025 has become operative, and the corresponding New Tax Regime is now contained in Section 202 of the new Act. Therefore, the change is principally the transition to the new Act and its terminology, rather than the introduction of a new HUF-specific tax rule, according to CA Dr Suresh Surana.

Accordingly, for Tax Year 2026-27 onwards, an HUF will ordinarily be taxed under the New Tax Regime under section 202 of the ITA 2025 unless it validly exercises the option to be taxed under the old regime.

"The practical consequence of remaining under the default regime is that the HUF must compute its income without several exemptions and deductions ordinarily available under the old regime. Common deductions such as Deductions under Section 123 read with Chapter XV, Section 126, etc. of ITA 2025 (corresponding to sections 80C, 80D etc. of ITA 1961) as well as interest on borrowed capital relating to a self-occupied house property, are generally unavailable under the new regime. A loss from house property also cannot be set off against income under another head," Dr Surana said.

New vs old regime slabs and rates for HUFs

The applicable surcharge and 4% Health and Education Cess are charged separately.

According to Dr Surana, unlike a resident individual, an HUF is not entitled to the tax rebate under section 156 of the Income-tax Act, 2025, corresponding to section 87A of the 1961 Act. This means, an HUF cannot assume that no tax will be payable merely because its total taxable income does not exceed ₹5 lakh under the old tax regime or ₹12 lakh (under the new tax regime.

Tax-regime switch options

The ability to switch regimes also depends upon whether the HUF has business or professional income.

"An HUF without business or professional income may opt for the old regime for a particular tax year while filing its return. For an HUF having business or professional income, opting out of the default regime requires the prescribed exercise of option within the stipulated time, and switching back is subject to restrictions," Dr Surana said.

"For instance, where the HUF has business or professional income, the option must be exercised by the taxpayer and, once exercised, ordinarily continues for subsequent tax years. Such an HUF is permitted to withdraw the option and return to the new regime only once; after doing so, it cannot generally select the old regime again unless it ceases to have business or professional income," he added.

According to the expert, there is an important procedural change under the new law.

For Tax Year 2026–27, Rule 136 of the Income-tax Rules, 2026 requires the option to opt out of, or re-enter, the new regime to be exercised in the return of income furnished under section 263(1).

"Thus, the separate Form 10-IEA procedure applicable to business-income cases under the Income-tax Act, 1961 does not apply in the same manner under the 2025 Act. Form 10-IEA nevertheless remains relevant for Assessment Year 2026–27, relating to income earned during Financial Year 2025–26, because that period continues to be governed by the Income-Tax Act 1961," Dr Surana said.

How to plan for taxes

For Tax Year 2026–27, the Karta or person managing the HUF’s tax affairs should prepare a comparative calculation under both regimes before making investments or finalising the tax position.

"The new regime should not be selected merely because it offers concessional slab rates. The comparison must consider the loss of deductions, restrictions relating to interest on self-occupied house property and the inability to set off house-property losses against income under other heads. It should also be remembered that an HUF is not entitled to the rebate available to resident individuals under section 156," said Dr Surana.

Where the old regime produces a lower liability, the HUF must exercise the option correctly and within the applicable return-filing deadline.

From Tax Year 2026–27, this option can be exercised directly through the return of income under Rule 136 of the Income-tax Rules, 2026, without filing a separate Form 10-IEA.

In the case of an HUF having business or professional income, the decision requires greater care because opting for the old regime ordinarily applies to subsequent tax years, and the HUF is permitted to withdraw that option and return to the new regime only once.

Dr Surana said HUF managers should also distinguish Tax Year 2026–27 from Assessment Year 2026–27.

Assessment Year 2026–27 relates to income earned up to March 31, 2026 and continues to be governed by the Income-tax Act, 1961, whereas Tax Year 2026–27 covers income earned from April 1, 2026 to March 31, 2027 under the Income-tax Act, 2025.

"Advance-tax calculations, investment decisions, house-property losses and documentation supporting deductions should therefore be reviewed under the correct law and regime from the beginning of the tax year, rather than only when the return is filed," the expert said.