Taxation of Oral Trusts in India : Clause 308 of the Income Tax Bill, 2025 Vs. Section 164A of the Income-tax Act, 1961

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....me arising from such trusts is not used as a vehicle for tax avoidance or evasion by imposing a stringent tax regime. The legislative context for these provisions is rooted in the broader framework of representative assessee taxation, where trustees or other persons legally or factually responsible for managing the income of others are taxed in a manner that ensures the revenue is not lost due to the complexity or lack of documentation in trust arrangements. The transition from Section 164A of the 1961 Act to Clause 308 in the proposed 2025 Bill reflects both continuity and certain legislative refinements, which merit close analysis. 2. Objective and Purpose a) Legislative Intent The primary objective behind both Section 164A and Clause....

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....ntitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate." Explanation: 'Oral trust' is defined by reference to Explanation 2 below sub-section (1) of section 160. * Clause 308, Income Tax Bill, 2025: (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. (2) For the purposes of this section, "oral trust" shall have the meaning assigned to it in section 303(3). b) Key Elements of the Pro....

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....able persons. c) Interpretational Issues and Ambiguities The provisions are drafted in clear, mandatory terms, leaving little room for discretion. However, certain interpretational questions may arise, particularly with respect to: * The precise scope of "person appointed under an oral trust" in Clause 308, especially in cases where multiple persons act as trustees or where the appointment is informal. * The interplay with other provisions related to representative assessees, as the Bill reorganizes and updates these concepts. * The definition of "oral trust" in the referenced sections, and whether it covers all informal trust arrangements or only those lacking any form of written record. d) Legislative Refinements in the 2025 Bill....

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.... for written, registered trust deeds. b) Compliance and Procedural Issues * Disclosure Requirements: Trustees or persons managing oral trusts must disclose the existence of such trusts and the income received, failing which they may face penalties for concealment or misreporting. * Burden of Proof: In the absence of written documentation, the burden may shift to the assessee to prove that an arrangement is not an oral trust, or to establish the nature of the trust for tax purposes. * Administrative Efficiency: By imposing a stringent tax rate, the provision reduces the need for detailed inquiry into the facts of each case, thereby improving administrative efficiency. 5. Comparative Analysis with Section 164A of the Income-tax Act, 1....

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....he general definition elsewhere in the Bill, indicating a move towards centralizing definitions and reducing redundancy. e) Policy Continuity and Legislative Clarity The transition from Section 164A to Clause 308 is characterized by policy continuity but improved legislative clarity. The new Bill appears to consolidate and clarify the rules relating to representative assessees, possibly in response to judicial decisions or administrative experience under the 1961 Act. f) Potential Conflicts and Harmonization Given the overriding nature of both provisions, conflicts with other sections are unlikely. However, the broader language in Clause 308 may lead to litigation over who qualifies as a "person appointed under an oral trust", especiall....