Charge of tax in case of oral trust
[Section-308 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 308(1) of Income Tax Act 2025
308(1) The income of the person appointed under an oral trust as mentioned in section 303(1)(e) shall be chargeable to tax at the maximum marginal rate, irrespective of anything contained in any other provision of this Act.
Section 308(2) of Income Tax Act 2025
308(2) For the purposes of this section, “oral trust” shall have the meaning assigned to it in section 303(3).
FAQs on Section 308 of Income Tax Act 2025
What is the charge of tax in the case of an oral trust under the Income Tax Act, 2025?
As per Section 308(1), the income of a person appointed under an oral trust referred to in Section 303(1)(e) is chargeable to tax at the maximum marginal rate, regardless of any other provision of the Act.
What is meant by “maximum marginal rate” in the context of oral trusts?
The maximum marginal rate refers to the highest rate of income tax applicable to the highest slab of income, including any surcharge or cess, applicable to individuals or other entities, as defined elsewhere in the Act.
Does Section 308 override other provisions of the Income Tax Act, 2025?
Yes, Section 308(1) applies notwithstanding anything contained in any other provision of the Act, which means it has overriding effect for the taxation of income from oral trusts.
Who is considered a person appointed under an oral trust?
This refers to a person acting as trustee or in any similar capacity under an oral arrangement defined under Section 303(1)(e), where no written trust deed exists but the trust is formed by words or conduct.
What is the definition of “oral trust” under this Act?
As per Section 308(2), the term “oral trust” has the meaning assigned to it under Section 303(3). That section defines it as a trust declared by oral communication without any written instrument.
From when is Section 308 applicable?
Section 308 is applicable from 1st April 2026, as per the enforcement timeline of the Income Tax Act, 2025.
Is the beneficiary of an oral trust taxed directly under Section 308?
No, Section 308 taxes the income in the hands of the person appointed under the oral trust, not the beneficiary.
Can an oral trust claim any exemption or lower tax rate available under other provisions of the Act?
No, income from oral trusts is taxed at the maximum marginal rate irrespective of any exemptions or deductions under other provisions.
Why is the income of an oral trust taxed at the maximum marginal rate?
This provision discourages the use of informal and unverifiable trust structures that lack written documentation, thereby reducing potential tax avoidance through such mechanisms.
Does this provision apply to written trusts as well?
No, Section 308 specifically applies only to oral trusts as defined in Section 303(3). Written trusts are governed by other provisions of the Act.
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