Section 308

Section 308: charge of tax in the case of an oral trust

Section 308 is a short, strict rule: income received or receivable by a trustee under an oral trust - one that was never set down in a duly executed written instrument - is always taxed at the maximum marginal rate, overriding anything else in the Act.

Maximum marginal rate applies, no matter what

Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, tax is charged on that income at the maximum marginal rate - irrespective of anything contained in any other provision of the Act.

Meaning of "oral trust"

"Oral trust" for the purposes of Section 308 has the meaning assigned to it in section 303(3) - broadly, a trust not declared by a duly executed instrument in writing (including a valid wakf deed) and not deemed under section 303(2) to be one declared by a duly executed instrument in writing.

Frequently asked questions

Why is an oral trust taxed differently from a written trust?

Because it lacks a duly executed written instrument recording its terms, an oral trust's income is taxed at the flat maximum marginal rate under Section 308, rather than potentially qualifying for the more favourable association-of-persons rate available to some written trusts under Section 307.

Can an unwritten trust ever avoid being treated as an "oral trust"?

Yes - under section 303(2), an otherwise-unwritten trust is deemed to be a trust declared by a duly executed instrument in writing if a signed written statement covering its purpose, trustee(s), beneficiary/beneficiaries and property is forwarded to the Assessing Officer within the time limit specified there.