Private Trust Income

Tax planning 5130 views 4 replies

Dhiraj Bagri

Manager - Finance & Accounts

174 Points Joined October 2009

Hi,

Needy view in the following situation: -

1). There is a private trust in which beneficiary share is undefined.

2). Beneficiary is minor and he/she is not beneficiary in any other trust.

3). Beneficiary has some income which is clubbed with his/her parent say income of Rs.50000/- and after giving exemption of Rs.18000/- (Rs.1500/- p.m) balance amounts gets taxed.

4). Trust income is Rs.170000/-

Now as per the Income Tax Act if share of the beneficiary is unknown then income from the Trust is taxable in the hands of trust and it can get the exemption of Rs.160000/- (normal) provided beneficiary of this trust is not beneficiary in any other trust and beneficiary does not have any chargeable income tax.In the above case beneficiary gets his / her income charged at the hand of his/her parent.

Now, beneficiary fulfills a condition that he/she is not beneficiary in other trust but only in place there is confusion: -

1). Whether beneficiaries income which is being taxed in his/her parents income will be considered as chargeable income tax. or

2).Even though he/she (beneficiary) is being charged in the hand of his/her parent and since the income is below Rs.160000/- i.e. Rs.50000/- trust can get the basic exemption limit.

Thanks in advance

Replies (4)

Dharani Sabarirajan

article clerk

21 Points Joined March 2011

i need some clarifications regarding private tust

can i Take the investment in FD anf deposit in SB account as application of trust income for the purpose of claiming exemption of trust income

Dhiraj Bagri

Manager - Finance & Accounts

174 Points Joined October 2009

Hi Dharani,

First need to check what kind of trust it is. I mean whether share of the beneficiary is determinate or not.

Also, I am enclosing herewith a file for your perusal which will help u to an extent to resolve your issue.

Thanking you

CA Pankaj Jain

Chartered Accountant

1243 Points Joined June 2007

First, of all, it is Rs. 1,500 per annum which is available as deduction while clubbing of minor's income with that of the parent.
Proviso to Section 164(1) of the Act says:-
if none of the beneficiaries
–has any other income exceeding the maximum taxable limit of an AOP or

–is a beneficiary under any other trust, the tax of the Trust will be charged at the rates prescribed in case of AOP.
In my opinion, the separate income which is below the taxable limit will be continued to be clubbed with that of the major.
Private Trust will get the separate benefit as it is fulfilling the condition that none of the beneficiaries is having income greater than the maximum taxable limit of AOP. It, in no way, affects the clubbing section 64 in relation to the minor.

vibha

banker

45 Points Joined December 2008

Dear All,

There is a private trust running educational institute. Now they want to avail bank loan funding. Structure is - private bunglow of one o the trustee is given against which bank is planning to sanction facility to the trust.

Hence, the question is whether bank can fund to private trust against security of one of the trustee. No security of trust is provided for bank loan even when the borrower is trust.

pls. revert ASAP