115-BAC-for AOP-private discretionary trust
This query is : Resolved
24 March 2026
Writing
Subject: Applicability of Maximum Surcharge @25% under Section 115BAC for Discretionary Trust (AOP)
I have a discretionary trust assessed in the status of an AOP. For FY 2024–25 (AY 2025–26), the return of income was filed opting for the new tax regime under Section 115BAC.
While computing tax liability, surcharge was restricted to 25% in accordance with the provisions of Section 115BAC, which provides for a maximum surcharge of 25%.
However, in the intimation received under Section 143(1), the Income Tax Department has recomputed the tax liability by applying surcharge at 37%.
In this regard, clarification is sought on the following:
Whether a discretionary trust (taxed as AOP) opting for Section 115BAC is eligible for the capped surcharge rate of 25%.
Whether the CPC is justified in applying surcharge at 37% despite the assessee opting for Section 115BAC.
Whether rectification under Section 154 would be the appropriate remedy in this case.
It is my understanding that under the amended provisions applicable for AY 2025–26, the maximum surcharge under Section 115BAC is restricted to 25% for all eligible assessees, including AOPS- Private discretionary trust.
Kindly provide your expert opinion on the correctness of the department’s adjustment.
Thanking you.
Subject: Applicability of Maximum Surcharge @25% under Section 115BAC for Discretionary Trust (AOP)
I have a discretionary trust assessed in the status of an AOP. For FY 2024–25 (AY 2025–26), the return of income was filed opting for the new tax regime under Section 115BAC.
While computing tax liability, surcharge was restricted to 25% in accordance with the provisions of Section 115BAC, which provides for a maximum surcharge of 25%.
However, in the intimation received under Section 143(1), the Income Tax Department has recomputed the tax liability by applying surcharge at 37%.
In this regard, clarification is sought on the following:
Whether a discretionary trust (taxed as AOP) opting for Section 115BAC is eligible for the capped surcharge rate of 25%.
Whether the CPC is justified in applying surcharge at 37% despite the assessee opting for Section 115BAC.
Whether rectification under Section 154 would be the appropriate remedy in this case.
It is my understanding that under the amended provisions applicable for AY 2025–26, the maximum surcharge under Section 115BAC is restricted to 25% for all eligible assessees, including AOPS- Private discretionary trust.
Kindly provide your expert opinion on the correctness of the department’s adjustment.
Thanking you.
24 March 2026
The Finance Act amended the First Schedule (Paragraph A, Part‑I) to provide that surcharge on tax computed under Section 115BAC is limited to 25% for individuals, HUFs, AOPs, BOIs and artificial juridical persons, even if their income would otherwise attract 37% under the old‑regime slab‑wise surcharge.
A private discretionary trust, when taxed as an AOP, falls within the class of entities covered by Section 115BAC‑based rates and is therefore entitled to this 25% cap on surcharge, subject to the income‑threshold and slab‑wise structure (e.g., 10%, 15%, 25% as applicable).
A private discretionary trust, when taxed as an AOP, falls within the class of entities covered by Section 115BAC‑based rates and is therefore entitled to this 25% cap on surcharge, subject to the income‑threshold and slab‑wise structure (e.g., 10%, 15%, 25% as applicable).
24 March 2026
The First Schedule explicitly states that the amount of tax computed under Section 115BAC is increased by surcharge according to the same slab‑wise rates, but the maximum rate is 25% in the new‑regime bracket; the 37% rate does not apply to 115BAC‑computed tax for AOPs / AJP‑type entities.
Where CPC has applied 37% solely on the basis of “trust/AOP” or “maximum marginal rate” without giving effect to the 115BAC‑specific cap, the demand is legally unsustainable and can be challenged in rectification and appeal.
Where CPC has applied 37% solely on the basis of “trust/AOP” or “maximum marginal rate” without giving effect to the 115BAC‑specific cap, the demand is legally unsustainable and can be challenged in rectification and appeal.
24 March 2026
Rectification under Section 154 is generally appropriate for "mistakes apparent from the record".
Applying a 37% surcharge to a Section 115BAC filer—where the law cap is 25%—constitutes a clear error in tax computation.
If the CPC rejects the rectification, an appeal to the CIT(Appeals) is the subsequent remedy, citing the Special Bench rulings that surcharge must follow the Finance Act's regime-specific caps.
The ITAT Special Bench (e.g., Araadhya Jain Trust) has clarified that "Maximum Marginal Rate" (MMR) refers only to the basic tax rate and does not automatically pull in the highest possible surcharge.
Applying a 37% surcharge to a Section 115BAC filer—where the law cap is 25%—constitutes a clear error in tax computation.
If the CPC rejects the rectification, an appeal to the CIT(Appeals) is the subsequent remedy, citing the Special Bench rulings that surcharge must follow the Finance Act's regime-specific caps.
The ITAT Special Bench (e.g., Araadhya Jain Trust) has clarified that "Maximum Marginal Rate" (MMR) refers only to the basic tax rate and does not automatically pull in the highest possible surcharge.
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