Question

What allowance in tax legislation is there for businesses that are managed on behalf of a trust? Discuss in 80 to 100 words.

Answer 1

• Tax Planning: The trustee can distribute income to the beneficiaries with the lowest marginal tax rates to minimise the amount of tax payable on distributed income or capital. It’s very different to a company structure because even though profits are taxed at the lower company tax rate (30%), the wage or dividend then paid out to you as the director is taxed at your personal tax rate, which can be significant depending on the amount.
• Trusts aren’t taxed: The trust doesn’t incur income tax if all of the trust income is distributed to adult resident beneficiaries.
• Capital Gains Tax (CGT) discount: A 50% discount applies to the disposal of assets held for over 12 months by the trust. Applicable to discretionary trusts only and only if beneficiaries are individuals (not companies).

(Src: https://www.homeloanexperts.com.au/business-loans/trust-business-structure/)

Income tax on Charitable Institution or Trust

Discussed below is income tax on various categories of income of charitable trust:

Category of income	Income subject to tax	Taxability
Donations/voluntary contributions	Voluntary contributions with a specific direction to form part of corpus of trust or institution	Exempt*
	Voluntary contribution without such specific direction	Forms part of income from property held under trust
Anonymous donations i.e., donations where donee does not maintain record of identity/any particulars of the donor	Donation exceeding higher of: i) 5% of total donations received by trust or ii) Rs 1,00,000	Taxed at 30%
	Anonymous donation received by trust established wholly for religious and charitable purpose on	Taxable in the same manner as voluntary contributions (without specific direction) as above
Income from property held under trust for charitable or religious purpose	Income applied for charitable or religious purpose in India	Exempt*
	Income accumulated or set aside for the application towards charitable or religious purpose in India	Exempt* to the extent of 15% of such income. This means at-least 85% of income from property to be applied for charitable and religious purpose in India as above and balance 15% can be accumulated or set aside. [See below comment on 85%]
Income from property held under trust created for charitable purpose which tends to promote international welfare in which India is interested	CBDT either by general or special order has directed that such income shall not be included in the total income of trust	Exempt*
Capital gain from asset held under trust in whole	Net consideration is utilised fully for acquiring another capital asset	Entire capital gain is deemed to have been applied for charitable and religious purpose and hence is exempt*
	Net consideration is utilised partially for acquiring another capital asset	Capital gain utilised in excess of cost of old asset transferred is considered to have been applied for charitable and religious purpose and is exempt*

*Only Charitable/ religious trust or institution registered under Section 12AA enjoys the exemption

(Src: https://cleartax.in/s/charitable-trusts-ngo-income-tax-benefits)