The trustee is taxed as a representative assessee — in the same way and to the same extent as the beneficiary (Section 304, old 160–161). Whether that means the beneficiary's slab or the maximum marginal rate depends entirely on how the deed is written.
A private trust isn't its own taxpayer type — the trustee is assessed as a representative assessee (Section 304, old 160–161) on the beneficiaries' behalf, "in the like manner and to the same extent" as the beneficiary. The Department can tax the trustee or the beneficiary directly — not both.
Where beneficiaries and shares are determinate, each share of income is taxed at that beneficiary's own slab. A beneficiary with no other income uses their basic exemption and lower slabs — the legitimate splitting benefit.
Where shares are indeterminate, the whole income is taxed at the Maximum Marginal Rate (highest slab + surcharge + cess, about 39%) — Section 307 (old 164).
If a private trust earns business income, even a specific trust is generally pushed to MMR (old proviso to 161(1A)). Keep a family trust to investments and property; run any business through a company/LLP the trust owns.
If revocable, income is added back to the settlor (Section 97, old 61–63) — so the trust must be irrevocable.
Property received by a trust created solely for the settlor's relatives is generally covered by the relative exemption (old 56(2)(x) proviso) — so funding a genuine family trust is normally not taxed as income in the trust's hands. Confirm for your facts.
Trust taxation is fact-specific — one wrong clause triggers the maximum marginal rate. Our CAs draft the deed and get the tax outcome right.
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