Chapter XVII - Special Provisions Relating to Certain Persons
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 specified situations - including certain testamentary trusts and employee welfare funds - are charged at the rate applicable to an association of persons.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) The income or any part thereof, in respect of the person mentioned in sections 303(1)(c) and (d) shall be chargeable to tax at the maximum marginal rate, if—
(a) such income or such part thereof is not specifically receivable on behalf or for the benefit of any one person; or
(b) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown.
(2) The income or any part thereof as referred to in sub-section (1), shall be chargeable to tax at the rate applicable to an association of persons as if it were its total income, if,—
(a) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in case of an association of persons, or is a beneficiary under any other trust; or
(b) such income or part of such income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or
(c) such income or part of such income is receivable under a trust created before the 1st March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide—
(i) exclusively for the benefit of the relatives of the settlor; or
(ii) exclusively for the benefit of the members of such family, where the settlor is a Hindu undivided family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or
(d) such income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession.
(3) Subject to the provisions of sub-section (4), where the income in respect of the person mentioned in section 303(1)(d) consists of, or includes, profits and gains of business, tax shall be charged at the maximum marginal rate on such income or part thereof.
(4) Where the profits and gains referred to in sub-section (3) are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him, income or part thereof shall be chargeable to tax at the rate applicable to an association of persons.
(5) For the purposes of this section,—
(a) such income or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the tax year is expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed;
(b) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed and are ascertainable as such on the date of such order, instrument or deed.
Introduction
Section 307 sets the tax rate for certain representative-held income when beneficiaries or their shares cannot be specifically identified. The default is the maximum marginal rate.
The section contains defined exceptions, including some will-created and older family or employee-benefit trusts; business income can have a separate rule.
Key takeaways
Unknown beneficiary shares
Where trust or representative income is not specifically receivable for identifiable beneficiaries, the default charge can be at the maximum marginal rate.
Statutory exceptions matter
The section identifies cases taxed at the association-of-persons rate instead, and a separate rule for business income.
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.
Step-by-step flow for the charge where beneficiaries' shares are unknown
- 1
Is the income received by a person in Section 303(1)(c) (court-appointed receiver, Court of Wards and similar) or Section 303(1)(d) (trustee of a written trust)?
- No: Section 307 does not apply.
- Yes: Go to the next step.
- 2
Does the Section 303(1)(d) income include profits and gains of business?
- Yes: For that business income, skip to step 5.
- No: Go to the next step.
- 3
Is the income not specifically receivable for any one person, or are the individual shares indeterminate or unknown?
Under Section 307(5), the beneficiary and the shares count as known only if expressly stated in the court order, trust instrument or wakf deed, and identifiable or ascertainable on its date.
- No, the beneficiary and shares are known: Section 307(1) does not apply.
- Yes: Section 307(1) points to the maximum marginal rate; go to step 4 to check the exceptions.
- 4
Does an exception in Section 307(2) apply?
(a) no beneficiary has other chargeable income above the maximum amount not chargeable for an association of persons, or is a beneficiary under another trust; (b) the only trust declared by a person by will; (c) a trust created before 1 March 1970 by a non-testamentary instrument, bona fide for dependent relatives or family members; (d) a bona fide employee provident, superannuation, gratuity, pension or other fund.
- Yes: Charge at the rate applicable to an association of persons, as if it were its total income.
- No: Charge at the maximum marginal rate.
- 5
Business profits of a written trust
Under Section 307(3), tax is charged at the maximum marginal rate, unless Section 307(4) applies: a trust declared by will, exclusively for a relative dependent on the testator, and the only trust so declared. Then the rate applicable to an association of persons applies.
Practical checklist
Do
- Check the trust instrument or court order for expressly identifiable beneficiaries and shares.
- Test each statutory exception before using the default maximum marginal rate.
Avoid
- Assume the association-of-persons rate applies to every trust with unknown beneficiary shares.
Illustrative example
Worked example: a discretionary trust for three nephews
Hypothetical facts (illustration only, not a real taxpayer): Mr. Menon sets up a trust by a written deed in 2026 (not by will) for his three nephews. The deed lets the trustees decide each year how to divide the income; no shares are stated. The trust earns interest income of ₹9,00,000 (assumed) and no business income. One nephew has a salary that is assumed to exceed the maximum amount not chargeable for an association of persons.
Category
The trustees hold under a written instrument, so this is a Section 303(1)(d) case.
Shares
The deed does not expressly state the nephews' shares, so under Section 307(5)(b) they are deemed indeterminate.
Exceptions
Clause (a) fails because one nephew has other income above that limit; clause (b) fails because the trust is not by will; clause (c) fails because the trust was created after 1 March 1970; clause (d) does not fit.
Result
The ₹9,00,000 is charged at the maximum marginal rate under Section 307(1). Section 307 does not state that rate; it is taken from the Act and the relevant Central Act.
Outcome
- The trust's ₹9,00,000 is charged at the maximum marginal rate.
- Stating fixed shares in the deed would have taken the income outside Section 307(1).
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.
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