14 February 2015
Sir My father by his WILL had formed a discretionary family trust. After his death the said trust was formed and its Income tax returns were filled regularly showing its status as” Individual” which is possible as one discretionary trust created by WILL enjoys status of individual as per Income tax law. Later on its manual return was not accepted and were told to file e-return where in we are not able to file ITR form 1 as PAN no has T (trust) denoting status. If we file form 5 we have to pay tax at full rate and benefit of I tax slab rates applicable to individual is not available. Is there any way we can change status of this trust to individual in PAN card data or how can we file ITR of this trust as Individual?
14 February 2015
The maximum marginal rate of tax is not applicable in the following cases, and the income will be chargeable to tax as if it were income of an association of persons(AOP) :-
(a)Where none of the beneficiaries has any other income chargeable to tax under the Income Tax Act and none of the beneficiaries is a beneficiary under any other trust or
(b)Where the relevant income or part of relevant 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)Where the trust is a non-testamentary trust created before March 1, 1970 for the exclusive benefit of relatives of the settlor mainly dependent on him for their supporter maintenance or, where settlor is a Hindu undivided family, for the exclusive benefit of its members so dependent upon it or
(d)Where the trust is created 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. In cases of (a), (b) and (c) supra, the relevant income is taxable in the hands of trustees as if it were the total income of an association of persons, while income falling under (d) supra is exempt from tax.
15 February 2015
Sir There is no confusion that trust created under WILL would be taxed at individual rates but e-return filing does not have this category so sec 143(1) order is always at highest rate. How to correct status of this trust in PAN card data is what i would like experts to advise.
02 August 2025
This is a classic issue many discretionary family trusts created by WILL face with PAN and e-filing systems.
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### Summary of the issue:
* The trust created under the WILL is **taxed at individual slab rates** (not the highest rate), as per income tax provisions. * However, the PAN card has the status type **‘T’ (Trust)**, so the e-filing portal **does not allow filing ITR-1** (for individuals) and **forces ITR-5** (for trusts), resulting in tax calculated at the highest rate. * You want to know if it’s possible to **change the PAN status from ‘Trust’ to ‘Individual’** or file the return as an individual for the trust.
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### Important points & suggestions:
1. **Nature of Trust & Taxation:**
* Section 2(31) Income Tax Act treats such trusts created under WILL as an Association of Persons (AOP) or as an individual for tax purposes. * The income tax law recognizes this, but PAN category and e-filing portal classification often don’t.
2. **PAN Status Change:**
* PAN card status is based on **the nature of the entity** at the time of application. * Changing PAN entity type (from Trust to Individual) is generally **not allowed** under normal circumstances because it identifies the taxpayer. * However, you can **apply for a new PAN** with the correct status (Individual), but that means a new PAN number — which may cause problems for past filings, bank accounts, etc. * Another approach is to **apply for correction** in PAN details (Category change request) via NSDL or UTIITSL portals, but approval is uncertain as it depends on the income tax department’s discretion.
3. **Filing Returns Correctly:**
* Since e-filing portal doesn’t have an option for such trusts as individuals, you can:
* **File a paper return** manually (ITR-1 or ITR-2 as applicable) mentioning correct status. * This avoids the default highest rate tax under section 143(1). * Or you may file **ITR-5 electronically** and then submit a rectification request or file a revised return with correct computation of tax based on slab rates and supporting documents.
4. **Rectification or Appeal:**
* If the tax is computed wrongly at the highest slab due to form mismatch, you can **file for rectification** under section 154. * Attach relevant computations, explaining the discretionary trust created under WILL is taxable at individual rates.
5. **Professional Assistance:**
* Consult a tax professional or CA for drafting submissions to Income Tax department or CPC for rectification. * They can also advise on whether **Advance Ruling** application can help clarify and fix the issue.
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### Practical steps you may consider:
* File paper return for the concerned assessment year(s) as an individual (if still possible). * Apply for correction of PAN category through NSDL/UTIITSL portals. * If paper filing not possible or inconvenient, file ITR-5 online but compute tax at slab rates and file rectification with explanations. * Keep documentation ready for trust deed, WILL, and correspondence to support your case.
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If you want, I can help draft an application for PAN correction or draft the explanation note for rectification filing. Would that be helpful?
CAclubindia
