INDIA Trends and Developments Contributed by: Akshika Harikrishnan, Mohona Thakur and Nikhil Asrani, Khaitan & Co
Maximum Marginal Rate (MMR) of tax on private trusts In the case of private discretionary trusts, income is chargeable to tax at MMR which means the income tax (including surcharge on income tax, if any) appli - cable in relation to the highest slab of income in the case of individuals as specified in the Finance Act for the relevant year. In Araadhya Jain Trust v Income Tax Officer Mumbai , the trust filed its return of income and paid tax at the MMR without any surcharge as its income was well below INR5 million. While processing the return, tax was levied with the highest surcharge rate of 37%. On appeal, the Special Bench of the Income Tax Appel - late Tribunal held that MMR means the highest rate of tax on income – ie, 30% – and the surcharge should be computed on the income tax having reference to the slab rates prescribed and not the maximum sur - charge rate of 37%. This clarification is instrumental in reducing the effec -
trust would be subject to tax since the trust deed provided the power to trustees to include any per - son or charity as beneficiaries. Although at the point of transfer of assets the trust was established exclu - sively for the family members who are relatives, with the power provided to the trustee, the benefits were not restricted to only relatives. Although the order was subsequently recalled, it is relevant to consider the potential impact of structur - ing trusts and evaluate the interpretation that could be taken by the tax authorities wherein tax is not deter - mined at the point of transfer of property and even a right to add non-relatives (although not exercised) could be treated as taxable. This may also impact the inclusion of ultimate beneficiaries, such as extended relatives and charities, in case all the originally listed beneficiaries have deceased. Concluding remarks: embracing change From managing legacy wealth to embracing new ave - nues for growth, these emerging trends are poised to define the future of private client practice in India. The regulatory framework is becoming more robust, policies are being streamlined, and legal structures are evolving to meet the needs of discerning high- net-worth individuals who are adapting to these devel - opments while navigating global impacts and cross- border opportunities.
tive tax burden on discretionary trusts. Trusts potentially benefiting non-relatives
Under the income tax laws, there is a specific exemp - tion on receipt of property by a recipient trust estab - lished by a settlor for the benefit of prescribed rela - tives. In the case of Buckeye Trust, the Income Tax Appellate Tribunal, Bengaluru Bench, held that the
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