Taxation on minor trust

If a trust is created for the benefit of a minor, the income could be chargeable in the hands of a guardian of the minor as direct assessment of the beneficiary is not barred as per Section 166 of the IT Act. However, the investment income of the minor is includible in the income of the father or mother as the case may be. Much tax advantage may not be available for making a 100% specific beneficiary trust for a minor. Thus, from the point of view of tax planning, it is advisable that in a trust deed for the benefit of the minor(s), there should be a provision that the income of the trust would not be applied for his benefit during the course of minority of the beneficiary.

In my opinion, a private is only a protection tool as against the tax planning tool. It can be used to protect the interests of the beneficiaries, but the beneficiaries have to pay the legitimate tax, which is otherwise payable by them in case they were not shielded by the private trust.