Taxabilitu of trust
This query is : Resolved
19 December 2012
Dear Experts
If a charitable trust is unregistered than it will be treated as an aop and taxable at mmr.
But my que is that if all the members of the trust is having income bellow exemption or agriculture income only than in that case as well trust will be taxed at mmr or it will be given benefit of the slab system??
Please do reply as early as posible...
Thnaks in advance
If a charitable trust is unregistered than it will be treated as an aop and taxable at mmr.
But my que is that if all the members of the trust is having income bellow exemption or agriculture income only than in that case as well trust will be taxed at mmr or it will be given benefit of the slab system??
Please do reply as early as posible...
Thnaks in advance
19 December 2012
the income will be taxable according to slab system.
19 December 2012
FIRSTLY THANKS
IN THAT CASE DOES IT MEAN THAT ALL THE PROVISION OF THE AOP WILL APPLICABLE TO IT. IT WILL NO LONGER TREATED AS TRUST RIGHT???
AND ITS INCOME WILL BE TAXED AT SLAB RATE AND NOT THE MMR I.e 30% FLAT
IN THAT CASE DOES IT MEAN THAT ALL THE PROVISION OF THE AOP WILL APPLICABLE TO IT. IT WILL NO LONGER TREATED AS TRUST RIGHT???
AND ITS INCOME WILL BE TAXED AT SLAB RATE AND NOT THE MMR I.e 30% FLAT
26 July 2025
Great question! Here’s the clarification on the **taxability of an unregistered charitable trust** where all members have income below exemption limits or only agricultural income:
---
### Basic points:
1. **Unregistered Trust**
If a charitable trust is **not registered under the Income Tax Act (like under Section 12AA)**, then technically it **does not get the benefits** of exemption available to registered trusts.
2. **Tax treatment of unregistered trust**
* In the absence of registration, the trust is **treated as an AOP (Association of Persons)** or **HUF (if applicable)** for tax purposes.
* Normally, **income of an AOP is taxed at the maximum marginal rate (MMR)** (which is generally 30% + surcharge + cess), **irrespective of the individual members’ income levels**.
3. **Members’ income and slab benefit**
* The individual members’ income **does NOT affect the taxation of the AOP/trust** income.
* The trust’s income is taxed **at MMR** at the trust level.
* The members are **not taxed individually on the trust income**, unless it is distributed to them (in case of beneficiaries in case of some trusts).
---
### Your question:
> If all members have income below exemption or only agriculture income, will the trust still be taxed at MMR or given slab benefit?
**Answer:**
The trust is **taxed at the maximum marginal rate (MMR),** irrespective of members’ income.
**Members’ individual income or exemption limits do not influence the tax rate applicable to the trust or AOP income.**
---
### Why?
* An AOP is a separate taxable entity, and the Income Tax Act **mandates flat MMR for AOPs**, which is independent of the members’ personal tax slabs.
* The trust is **not ‘passed through’ to members for tax purpose** unless the income is distributed (and even then, provisions differ).
---
### Summary:
| Scenario | Tax treatment |
| ----------------------------- | ---------------------------------- |
| Registered charitable trust | Exemptions as per Sections 11,12 |
| Unregistered charitable trust | Treated as AOP, taxed at MMR (30%) |
| Members’ income below limit | No impact on trust tax rate |
---
If you want to save on tax, it’s always advisable to **register the trust under Section 12AA** to avail exemptions.
---
Would you like me to explain the process or benefits of trust registration?
---
### Basic points:
1. **Unregistered Trust**
If a charitable trust is **not registered under the Income Tax Act (like under Section 12AA)**, then technically it **does not get the benefits** of exemption available to registered trusts.
2. **Tax treatment of unregistered trust**
* In the absence of registration, the trust is **treated as an AOP (Association of Persons)** or **HUF (if applicable)** for tax purposes.
* Normally, **income of an AOP is taxed at the maximum marginal rate (MMR)** (which is generally 30% + surcharge + cess), **irrespective of the individual members’ income levels**.
3. **Members’ income and slab benefit**
* The individual members’ income **does NOT affect the taxation of the AOP/trust** income.
* The trust’s income is taxed **at MMR** at the trust level.
* The members are **not taxed individually on the trust income**, unless it is distributed to them (in case of beneficiaries in case of some trusts).
---
### Your question:
> If all members have income below exemption or only agriculture income, will the trust still be taxed at MMR or given slab benefit?
**Answer:**
The trust is **taxed at the maximum marginal rate (MMR),** irrespective of members’ income.
**Members’ individual income or exemption limits do not influence the tax rate applicable to the trust or AOP income.**
---
### Why?
* An AOP is a separate taxable entity, and the Income Tax Act **mandates flat MMR for AOPs**, which is independent of the members’ personal tax slabs.
* The trust is **not ‘passed through’ to members for tax purpose** unless the income is distributed (and even then, provisions differ).
---
### Summary:
| Scenario | Tax treatment |
| ----------------------------- | ---------------------------------- |
| Registered charitable trust | Exemptions as per Sections 11,12 |
| Unregistered charitable trust | Treated as AOP, taxed at MMR (30%) |
| Members’ income below limit | No impact on trust tax rate |
---
If you want to save on tax, it’s always advisable to **register the trust under Section 12AA** to avail exemptions.
---
Would you like me to explain the process or benefits of trust registration?
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