Section 307
Section 307: charge of tax where the share of beneficiaries is unknown
Section 307 deals with income held by a Court of Wards, Administrator-General, Official Trustee, receiver/manager, or a trustee of a written trust, where it isn't clear who the money belongs to or in what proportion. As a default it is taxed at the maximum marginal rate, but several common situations - like a sole testamentary trust or an employee welfare fund - instead get the more favourable association-of-persons rate.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Default rule: maximum marginal rate
Income (or part of it) of the persons described in section 303(1)(c) and (d) - Court of Wards, Administrator-General, Official Trustee, receiver/manager, or a trustee under a written trust - is chargeable to tax at the maximum marginal rate if either: the income is not specifically receivable on behalf or for the benefit of any one person; or the individual shares of the persons on whose behalf or for whose benefit it is receivable are indeterminate or unknown.
Exceptions taxed at the association-of-persons rate instead
The income described above is instead chargeable at the rate applicable to an association of persons, as if it were that association's total income, if:
- None of the beneficiaries has any other income chargeable under the Act exceeding the maximum amount not chargeable to tax for an association of persons, and is not a beneficiary under any other trust; or
- The income is receivable under a trust declared by a person's will, and that is the only trust so declared by that person; or
- The income is receivable under a trust created before 1st March, 1970 by a non-testamentary instrument, and the Assessing Officer is satisfied it was created bona fide exclusively for the benefit of the settlor's relatives, or (where the settlor is an HUF) exclusively for family members mainly dependent on the settlor for support and maintenance; or
- The income is receivable by trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or other fund created bona fide by a person carrying on a business or profession, exclusively for the benefit of persons employed in that business or profession.
Business income is different again
Where income under section 303(1)(d) consists of, or includes, profits and gains of business, tax is charged at the maximum marginal rate on that income - subject to one exception: if those business profits and gains are receivable under a will-based trust exclusively for the benefit of a relative dependent on the testator for support and maintenance, and that is the only trust so declared, the income is instead taxed at the association-of-persons rate.
When are shares treated as "unknown" or income as "not specifically receivable"?
Income is deemed not specifically receivable on behalf or for the benefit of any one person unless that person is expressly stated, and identifiable as such, in the court order, trust instrument or wakf deed as of its date.
Individual shares are deemed indeterminate or unknown unless they are expressly stated in, and ascertainable from, the court order, trust instrument or wakf deed as of its date.
Frequently asked questions
What tax rate applies when the beneficiaries of a trust are unknown?
As a default, the maximum marginal rate applies under Section 307(1). But several exceptions in Section 307(2) - such as a sole will-based trust, an older bona fide family trust, or an employee welfare fund - are instead taxed at the association-of-persons rate.
Does the exception apply if beneficiaries have other significant income?
One of the exceptions in Section 307(2)(a) only applies if none of the beneficiaries has other income exceeding the maximum amount not chargeable to tax for an association of persons, and none is a beneficiary under any other trust.
How does the Act decide if a beneficiary's share is "unknown"?
Under Section 307(5), a share is deemed indeterminate or unknown unless it is expressly stated in, and ascertainable from, the relevant court order, trust instrument or wakf deed as of its date.
Related sections
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