With the implementation of the Income-tax Act, 2025, the New Tax Regime is now the default for Hindu Undivided Families (HUFs) for the 2026-27 assessment year. Families must now decide whether to accept the default lower slab rates or opt for the old regime to retain traditional deductions. This requires the Karta to carefully calculate tax liability under both options before filing their return.
Under the Income-tax Act, 2025, which came into effect on April 1, 2026, Hindu Undivided Families (HUFs) have entered a new phase of tax compliance. The most significant shift for the 2026-27 assessment year is that the New Tax Regime is now the default choice. For many HUFs, this transition fundamentally changes how they approach annual tax planning, moving away from the structure established under the legacy Income-tax Act, 1961.
The Deduction Trade-Off
The primary challenge for the Karta lies in the trade-off between lower tax rates and the loss of long-standing tax-saving benefits. Under the default New Tax Regime, many common deductions, such as those under Section 80C for investments and Section 80D for health insurance, are removed. Families that have traditionally relied on these deductions to lower their taxable income may find their overall tax outgo higher under the new default structure, despite the lower headline tax rates. The decision to remain under the old regime to protect these deductions must be an intentional, well-calculated choice rather than a passive one.
Business Income and Compliance Requirements
For HUFs that earn income through business or professional activities, the decision-making process is more rigid. Choosing the old regime to retain specific deductions requires proactive compliance. Those with business or professional income must ensure they file Form 10-IEA by the due date specified under Section 139(1) of the Act. Without this filing, the tax authorities will automatically process the return under the default New Tax Regime. This could effectively lock the family into a tax structure that may not be the most efficient for their specific financial situation.
Impact on Asset and Loss Management
Another critical area to evaluate involves the treatment of losses. The new framework introduces restrictions on setting off losses from house property against income from other sources. For HUFs with significant exposure to real estate investments or rental properties, this could result in a different tax outcome compared to previous years. The Karta must now conduct a comparative calculation—evaluating the tax payable under both the old and new regimes—before deciding which path to adopt. Because HUFs are treated as separate assessable entities, they do not qualify for the same personal income tax rebates available to individual taxpayers, making this comparative analysis essential for accurate planning.
Looking ahead, the immediate focus for the Karta should be a detailed projection of the family's income, deductions, and potential losses for the year. Reviewing the previous year’s deductions against the new slab structure is the most reliable way to determine which regime is more cost-effective for the family unit. Given the nuances of the new Act, consulting the family's tax records early in the year can prevent last-minute compliance errors.