TAXATION OF TRUST

• Taxable entity under Income Tax Act, 1961
• The income is taxable in the hands of Trust or beneficiary or authorised representative
•  The income of the trust is assessable in the status of an Individual
• Required to obtain separate PAN
• Central Government has notified certain accounting standards which shall have to followed while computing income of a trust.
• Income from House property is taxable on the basis of annual rent.  Even if the property is not let out, notional rent is taxable. However, in case of self occupied property, its annual value is deemed to Nil.
• It is better to follow cash basis of accounting.
• Books of accounts to be maintained if profit exceeds Rs. 1,20,000/- or gross receipts exceeds Rs. 10,00,000/-.
• Tax audit is compulsory if turnover exceeds Rs. 60,00,000/-.
• Specific trust – When share income of the beneficiary is know and determinate – 161(1)
• Discrenatory trust - When share income of the beneficiary are not  know and not determinate – 164
• U/s 161 (1A) income of private trust which include business profits shall be charged at Maximum Marginal rate.
• Discrenatory trust other than private  is taxed in the same manner as it would be taxed in the hands of a beneficiary – i.e. individual.
• When trust is chargeable at MMR no basic exemption of Rs. 160,000/- is not available.
• Clubbing provisions are common
• In any event, if the benefit through the medium of trust is deferred beyond the minority of the child, such a deferred benefit would not be includible u/s 64(1A) , in the income of parent. Thus, if part of the income vests in the minor child during his minority and the entire benefit is deferred to a point beyond the minority of the child, no part of the Income , including that accrued to the trustees during his minority, shall be clubbed in the net of section 64(1A)
• Specific trusts may be crated for an un born child, a would be son in law, a would be daughter in law, a would be wife etc and their respective share of income will be taxable as it would be taxed to an individual.
• It is better to form specific trust than discretionary   trust as discretionary trust are taxable at MMR.