Tax rate applicable on Trust

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Suraj Agarwal (Querist)

27 October 2010 Sir,

In Wealth Tax, Trust is assessable as an individual.

But in Income Tax, in which capacity a trust will be assessble ??
Please give reply with the supporting provisions/cases details.

Thanks for your reply in advance.

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)

27 October 2010 Trust will be assessable as artificial person.

This is a reiduary classification, those assessee who is not covered under any one ( individaul,HUF,Firm,Company, AOP, Local authority).

taxindiaconnect

taxindiaconnect (Expert)

27 October 2010 trsut is an AOP.

Suraj Agarwal

Suraj Agarwal (Querist)

27 October 2010 There are two different expert opinions. So give me final conclusion.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

26 July 2025 Great question! Here’s a clear explanation of how **trusts** are treated for **Income Tax** and **Wealth Tax** purposes in India:

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### 1. **Income Tax Treatment of Trusts**

* **Trust is assessed as an Artificial Juridical Person** (AJP).

* This means the trust is a separate taxable entity, distinct from its trustees or beneficiaries.

* **Section 2(31) of the Income Tax Act, 1961** defines an "association of persons" (AOP) and a "body of individuals" (BOI), but a trust is **not automatically an AOP or BOI** unless created by an agreement or mutual understanding among members.

* Generally, a **private trust** (non-charitable) is treated as an **AOP** for tax purposes if it has multiple beneficiaries.

* **Public charitable trusts** registered under Section 12A are exempt from tax on income used for charitable purposes, but the trust itself is still treated as a separate entity.

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### 2. **Wealth Tax Treatment of Trusts**

* Under the old **Wealth Tax Act**, trusts were assessed like an **individual** if the property belonged to the trust (for example, a discretionary trust).

* This is because the wealth tax law did not treat trusts as separate entities, but taxed the beneficial owners/individuals.

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### 3. **Summary**

| Tax Type | How Trust is Assessed | Notes |
| ---------- | ------------------------------------------ | ---------------------------------------------------------------- |
| Income Tax | Artificial Person (AOP or separate entity) | Separate entity for income tax; trusts file returns under PAN |
| Wealth Tax | Like an Individual | Wealth tax is levied on beneficial owners or trustees personally |

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### 4. **Supporting References**

* **Income Tax Act, Section 2(31)** (definition of AOP and BOI)
* Income Tax Department Circulars & Case Laws:

* *ITO v. Lotus Trading Co.* (ITAT Mumbai) — treating trusts as AOPs for tax
* CIT v. D. G. Sugars Ltd. — trust treated as separate entity
* Wealth Tax Act (now abolished) — treated trusts like individuals

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### 5. **Final Conclusion**

* For **Income Tax**, trusts are **assessed as artificial juridical persons** (separate from individuals) — they file returns independently.
* For **Wealth Tax** (prior to abolition in 2015), trusts were treated similarly to individuals, i.e., taxed on beneficial ownership.

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If you want, I can also help you with trust registration, tax filings, or compliance procedures. Just ask!

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