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Section 308 Income Tax Act 2025: How Is an Oral Trust Taxed?

Section 308 of the Income-tax Act, 2025 prescribes a special charge of income-tax on income received, or receivable, by a trustee for another person under an oral trust. The prescribed rate is the maximum marginal rate.

Current law: Section 308, titled "Charge of tax in case of oral trust", forms part of Chapter XVII. The Income-tax Act, 2025 took effect on 1 April 2026. This provision corresponds to section 164A of the Income-tax Act, 1961. The meaning of "oral trust" is supplied by section 303(3).

What does Section 308 of the Income Tax Act 2025 provide?

When a trustee receives income, or is entitled to receive income, for the benefit of another person under an oral trust, section 308(1) charges that income to tax at the maximum marginal rate. Its overriding language means that a different provision of the Act does not, merely by itself, displace this specific charging rule. Whether a particular arrangement is an oral trust must be established under section 303.

Section 308 explained subsection by subsection

Section 308(1): Charge at the maximum marginal rate

The statutory trigger is income which a trustee receives or is entitled to receive on behalf of, or for the benefit of, a person under an oral trust. Once the statutory conditions are met, tax on that income is charged at the maximum marginal rate. The provision is not confined to amounts already distributed to beneficiaries.

Section 308(2): Meaning of oral trust

Subsection (2) expressly adopts the meaning assigned to oral trust by section 303(3). Therefore, an arrangement's documentation and any applicable statutory deeming rule must be checked before treating it as an oral trust.

Relevant statutory definitions

Oral trust - Section 303(3): A trust not declared by a duly executed written instrument and not deemed to be a trust declared by such an instrument under section 303(2). The absence of an original written trust deed alone is not conclusive if the subsection (2) deeming requirements are satisfied.

Deemed written trust - Section 303(2): Subject to the conditions in that subsection, a trust without a duly executed written instrument can be deemed to be a written trust where the prescribed signed statement specifying the trust's purposes, trustees, beneficiaries and trust property is forwarded to the Assessing Officer within the statutory time limit.

Trustee / representative assessee: Section 303(1)(e) includes a trustee who receives or is entitled to receive income on behalf of a beneficiary under an oral trust within the representative assessee framework. Section 304 addresses representative assessment and recovery.

Maximum marginal rate: The expression has the meaning assigned by the definitions provision in section 2 of the Act. It is not necessarily the ordinary slab rate of the beneficiary; the applicable statutory definition and rates for the relevant tax year must be used.

Important: Section 308 is a charging provision. It does not itself prescribe a separate return form, independent filing deadline, or fixed numerical tax rate. Compliance and computation must be determined from the Act, applicable rates and rules.

Practical examples of oral trust taxation

Example 1: Informal trust holding rental income

A person holds property for identified beneficiaries under an informal trust arrangement and collects rent as trustee. If the arrangement qualifies as an oral trust under section 303(3), income received or receivable by the trustee for the beneficiaries falls within section 308(1), subject to the other facts relevant to the charge.

Example 2: A qualifying signed statement

A trust was initially declared without a duly executed written instrument. If a signed statement satisfying section 303(2) was forwarded within the applicable statutory period, the trust may be deemed a written trust. The classification should be determined before applying the oral-trust charge under section 308.

Example 3: Income not yet distributed

A trustee is entitled to receive investment income for beneficiaries under an oral trust but has not distributed it. Section 308 expressly covers income that the trustee is entitled to receive, so non-distribution alone does not exclude the income from the section.

How Section 308 relates to other trust-tax provisions

Section 303: identifies representative assessees and defines oral trusts.
Section 304: addresses liability and assessment of representative assessees.
Section 305: deals with recovery of tax paid by a representative assessee.
Section 307: deals with taxation where beneficiaries' shares are unknown, subject to its statutory conditions.

Section 308 specifically addresses oral trusts. Section 307, by contrast, concerns cases involving indeterminate or unknown beneficiary shares. The correct provision depends on the trust's legal classification and facts; the two provisions should not be treated as interchangeable.

Frequently asked questions

What tax rate applies to income of an oral trust?

Section 308(1) requires tax to be charged at the maximum marginal rate, as defined and applicable under the Act for the relevant tax year.

Does every trust without a registered deed count as an oral trust?

No. The statutory test refers to a duly executed written instrument and the deeming provision under section 303(2). Mere non-registration is not, by itself, the complete statutory test.

Does Section 308 apply only when the trustee actually receives money?

No. It also expressly covers income which the trustee is entitled to receive on behalf of, or for the benefit of, another person.

Which provision of the 1961 Act corresponds to Section 308?

Section 164A of the Income-tax Act, 1961. The Income Tax Department's section mapping identifies this correspondence.

Official law and further reading

Read the Income-tax Act, 2025 in the Gazette of India, the Income Tax Department's consolidated Act as amended by the Finance Act, 2026, and the official section correspondence table.

Last reviewed: 11 November 2026. This article provides general legal information; check the applicable enacted text, amendments and facts before relying on it for a tax filing or dispute.