| Yes, it is legally possible to have a trust for an unborn person like a would-be-son, would-be wife of a son or a grandson, etc., in such a manner that the said trust becomes assessable at the normal slab rates of income tax applicable to an association of persons (AOP) or an individual, and the income of the unborn person is also not liable to be clubbed with the income of the father, grandfather, etc. It is suggested that this tax planning should be adopted only when the settlor wants to make genuine settlement for the benefit of the unborn person. The drafting of the trust deed requires special skill from the point of view of the provisions of the Transfer of Property |
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Act in the matter of the rule against perpetuity, etc. None of the beneficiaries should be a beneficiary under another trust and his other income should be below the taxable limit. If these precautions are not taken, the entire income of such a trust would become liable to tax under Section 164(1) of the IT Act at the maximum rate of income tax applicable to an individual, which is 30% on income tax for AY 2012-2013. If all the precautions are taken, the income of the trust for the unborn person would be liable to tax at the normal rates of IT applicable to an association of persons (AOP) or an individual. This is also clear from the CBDT Circular No.577 dated 4.9.90.
A further precaution is to be taken to ensure that the trust should not have any profit and gains of business conducted through the medium of such trust. Where a private family trust derives income from a business undertaking, the entire income, including income from other trust property, will be charged at the maximum marginal rate of tax, except where a trust is declared by a person in his Will under certain circumstances as explained below.
It is also possible for a Hindu to have a genuine endowment for his personal deity or God to be liable to separate assessment as an artificial juridical person described as a “person” under Section 2(31) of the IT Act at normal slab rates of tax. |
