Hi
My client has a family private trust which is holding 30% share in one LLP. Now LLP decided to distribute the profits after paying tax.
Now I need to know the tax applicability below.
1. Any Tax on Trust Hands
2. Any Tax on Beneficiary
3. Any Tax on Settlor
4. What if Trust also decided to distribute income received from LLP to the Beneficiary, does the beneficiary need to pay any tax?
please help with the answers or references.
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Trust Distribution To Beneficiary Tax?
Replies (1)
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Tax on Trust: The trust is liable for tax on the LLP profit share. If the trust holds business income, it is often subject to the Maximum Marginal Rate (MMR).
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Tax on Beneficiary: Generally not taxable upon receipt, as it is considered a distribution of taxed income from the trust.
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Tax on Settlor: Only taxable if the trust is revocable (under clubbing provisions).
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Key Note: The tax outcome is highly dependent on whether the trust is determinate or discretionary and whether the income is classified as business income. Always consult with a qualified tax professional to review the specific Trust Deed and ensure compliance with Sections 161–164 of the Income Tax Act.
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