HUF tax planning: Why choosing the new regime could cost you deductions in 2026-27

Hindu Undivided Families (HUFs) entering Tax Year 2026-27 will need to look beyond the lower tax rates offered by the default new regime. While the new slabs can reduce the headline tax burden, HUFs that stay with the regime could lose access to several deductions and tax benefits available under the old regime.

From April 1, 2026, the Income-tax Act, 2025 will govern income earned during Tax Year 2026-27. Under Section 202 of the new Act, the new tax regime remains the default framework for HUFs, unless they validly opt for the old regime. According to CA (Dr.) Suresh Surana, HUF managers should compare their tax liability under both regimes before finalising investments or other tax-planning decisions.

The New Tax Regime

Under the new regime, the tax rate is nil on income up to Rs 4 lakh. Income between Rs 4 lakh and Rs 8 lakh is taxed at 5%, followed by 10% between Rs 8 lakh and Rs 12 lakh, 15% between Rs 12 lakh and Rs 16 lakh, 20% between Rs 16 lakh and Rs 20 lakh, 25% between Rs 20 lakh and Rs 24 lakh, and 30% on income above Rs 24 lakh. Surcharge and 4% Health and Education Cess are charged separately.

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The lower rates, however, come with fewer deductions. Common deductions available under the old regime, including those corresponding to Sections 80C and 80D of the Income-tax Act, 1961, are generally unavailable under the new regime. This means HUFs should not assume that investments or eligible expenses made for tax-saving purposes will automatically reduce their taxable income.

The new-regime slabs applicable from TY 2026-27 are:

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Tax benefits

Housing-related tax benefits also require attention. Interest on borrowed capital relating to a self-occupied house property is generally not available as a deduction under the new regime. Further, a loss from house property cannot be set off against income under another head. For an HUF with a significant home loan or house-property loss, these restrictions could materially alter the tax calculation.

Another important distinction is that HUFs do not qualify for the tax rebate available to resident individuals under Section 156 of the Income-tax Act, 2025, corresponding to Section 87A under the earlier law. Therefore, an HUF cannot assume that income below Rs 12 lakh will necessarily result in zero tax under the new regime.

Switching tax regimes

The ability to switch regimes also depends on the nature of HUF income. An HUF without business or professional income can generally opt for the old regime while filing its return. For an HUF with business or professional income, however, opting for the old regime ordinarily has continuing implications, with the option to return to the new regime available only once, subject to the prescribed conditions.

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Surana advises HUF managers to 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 return under Rule 136 of the Income-tax Rules, 2026, rather than through the separate Form 10-IEA process used under the earlier law. HUFs should also distinguish this tax year from Assessment Year 2026-27, which continues to be governed by the Income-tax Act, 1961.