Charge of tax where share of beneficiaries unknown
[Section-307 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 307(1) of Income Tax Act 2025
307(1) Subject to the other provisions of this section, the income or any part thereof, in respect of the person mentioned in sections 303(1)(c) and (d) shall be chargeable to tax at the maximum marginal rate, if––
- (a) such income or such part thereof is not specifically receivable on behalf or for the benefit of any one person; or
- (b) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown.
Section 307(2) of Income Tax Act 2025
307(2) The income or any part thereof as referred to in sub-section (1), shall be chargeable to tax at the rate applicable to an association of persons, if,—
- 307(2)(a) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in case of an association of persons, or is a beneficiary under any other trust; or
- 307(2)(b) such income or part of such income is receivable under a trust declared by any person by will and such trust is the only trust declared by him; or
- 307(2)(c) such income or part of such income is receivable under a trust created before the 1st March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide––
- (i) exclusively for the benefit of the relatives of the settlor; or
- (ii) exclusively for the benefit of the members of such family, where the settlor is a Hindu undivided family,
- in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or
- 307(2)(d) such income is receivable by the trustees 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.
Section 307(3) of Income Tax Act 2025
307(3) Subject to the provisions of sub-section (4), where the income in respect of the person mentioned in section 303(1)(d) consists of, or includes, profits and gains of business, tax shall be charged at the maximum marginal rate on the whole of the income.
Section 307(4) of Income Tax Act 2025
307(4) Where the profits and gains referred to in sub-section (3) are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him, tax shall be charged at the rate applicable to an association of persons.
Section 307(5) of Income Tax Act 2025
307(5) For the purposes of this section,––
- (a) such income or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the tax year is expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed;
- (b) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed and are ascertainable as such on the date of such order, instrument or deed.
FAQs on Section 307 of Income Tax Act 2025
When is income taxed at the maximum marginal rate under Section 307(1)?
Income is taxed at the maximum marginal rate if it is not specifically receivable on behalf or for the benefit of any one person, or if the individual shares of the beneficiaries are indeterminate or unknown.
Who are the persons referred to in Section 303(1)(c) and (d)?
These generally include trustees of trusts or wakfs and representatives as specified, which are linked to the income referred to in Section 307.
What exceptions allow taxation at the AOP rate instead of the maximum marginal rate?
Income is taxed at the rate applicable to an association of persons if any of the following apply:
(a) None of the beneficiaries has income exceeding the basic exemption limit or is a beneficiary in another trust;
(b) The income is from a trust declared by will and it is the only trust so declared;
(c) The trust was created before 1st March 1970 by a non-testamentary instrument for the benefit of dependents of the settlor;
(d) The income is for a bona fide employee welfare fund like a provident or pension fund.
When is business income in a trust taxed at the maximum marginal rate?
If the income of the person under Section 303(1)(d) includes profits and gains from business, then the entire income is taxed at the maximum marginal rate, as per Section 307(3).
Are there any exceptions to taxing business income at the maximum marginal rate?
Yes, if the business income is received under a trust declared by will exclusively for the benefit of a dependent relative, and it is the only trust so declared by the testator, then the income is taxed at the rate applicable to an association of persons.
How is “not specifically receivable on behalf of any one person” determined?
Income is considered not specifically receivable on behalf of any one person unless the beneficiary is expressly named and identifiable in the court order, trust instrument, or wakf deed on the date it was executed.
How is “indeterminate or unknown share” of beneficiaries interpreted?
Shares are considered indeterminate or unknown unless they are expressly stated and ascertainable in the trust instrument, court order, or wakf deed on the date of such instrument.
What is the significance of the date 1st March 1970 in Section 307(2)(c)?
Trusts created before this date by non-testamentary instruments that meet specified bona fide conditions may qualify for concessional tax treatment at AOP rates.
Does Section 307 apply only to discretionary trusts?
It primarily targets discretionary trusts or cases where beneficiary shares are not clearly defined, but it can also apply to any trust that meets the conditions specified in the section.
Can a single trust have mixed taxation rates under Section 307?
Yes, if only a part of the trust’s income qualifies under exceptions (e.g., business income vs. other income), that part may be taxed differently under subsections (2), (3), or (4).
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