In short
India has no estate duty or inheritance tax — the levy was abolished for deaths on or after 16 March 1985 — and section 92(3)(c) of the Income-tax Act, 2025 expressly excludes property received under a will or by inheritance from the receipt charge. So the choice between a will, a private family trust, an LLP and partition of a Hindu undivided family is almost never a choice about tax on the transmission itself; it is a choice about who is taxed on the income afterwards, and about control. A private family trust is charged at the maximum marginal rate under section 307(1) wherever beneficiaries' shares are indeterminate, and under section 307(3) on any business income, so a discretionary trust buys flexibility at the price of the top rate. Partition of a Hindu undivided family is excluded from transfer by section 70(1)(a) and from the receipt charge by section 92(3)(g), which makes it the cheapest route where an HUF exists — but section 315(8) still refuses to recognise a partial partition effected after 31 December 1978.
A promoter asks which vehicle to use, and expects the answer to turn on tax. It rarely does. India taxes neither the estate nor the legatee, so the transmission itself is usually free whichever route is taken. What the four vehicles differ on is who pays tax on the income afterwards, how long the structure can last, and who controls it — and only the first of those is a tax question at all.
This note sets the four side by side under the Income-tax Act, 2025, and marks the points where the tax answer actually changes the choice.
Key points
- There is no estate duty and no inheritance tax. The levy was abolished for deaths on or after 16 March 1985, and section 92(3)(c) of the Income-tax Act, 2025 excludes receipts under a will or by inheritance from the charge in section 92(2)(m).
- Probate is no longer a precondition to establishing a legatee’s right: section 213 of the Indian Succession Act, 1925 was omitted with effect from 20 December 2025.
- A private family trust is charged at the maximum marginal rate wherever beneficiaries’ shares are indeterminate (section 307(1)) and on any business income (section 307(3)). Discretion costs the top rate.
- No private trust in India can be perpetual. Section 14 of the Transfer of Property Act, 1882 applies, and the section 18 exemption is confined to trusts for the benefit of the public.
- An LLP separates money from control by statute: section 42 of the LLP Act, 2008 makes economic rights transferable while section 42(3) withholds management rights from the transferee.
- Partition of an HUF is the cheapest transmission where an HUF exists — sections 70(1)(a) and 92(3)(g) — but section 315(8) still refuses to recognise a partial partition after 31 December 1978.
What is not taxed at all?
Start with what the four have in common, because it disposes of most of the anxiety that brings clients to the question.
There is no estate duty. It was abolished in respect of estates passing on deaths occurring on or after 16 March 1985, and nothing has replaced it. No inheritance tax has been enacted since.
There is no charge on the legatee. Section 92(2)(m) of the Income-tax Act, 2025 taxes money and property received without consideration, but section 92(3)(c) excludes anything received “under a will or by way of inheritance”, and section 92(3)(d) excludes receipts in contemplation of death of the donor. The Act contains no provision charging inheritance as such.
So the transmission of wealth on death is untaxed in India, by any of these routes. What is taxed is the income the assets produce, both during the administration of the estate and afterwards — and that is where the vehicles diverge.
What does a will actually cost in tax?
Nothing, on the transmission. The tax consequences of a will are confined to the period between death and distribution.
Section 302 makes the legal representative liable to pay any sum the deceased would have been liable to pay, “in the like manner and to the same extent as the deceased”, with that liability limited by section 302(4) to the extent the estate can meet it. Section 302(5) makes the representative personally liable where he disposes of or charges estate assets while the tax liability is undischarged — a trap for an executor who distributes early.
Section 312 then charges the income of the estate in the hands of the executor: as an individual where there is one executor, as an association of persons where there are more than one. Section 312(4) requires that assessment to be made separately from the executor’s own; section 312(5) requires separate assessments for each completed tax year, or part of one, from the date of death to complete distribution. Section 312(6) excludes income distributed to a specific legatee during the year from the estate’s income and includes it in the legatee’s.
The practical effect is a temporary taxable entity that exists only for as long as administration takes. An estate that is administered promptly produces one or two assessments; one that drifts for years produces a stream of them.
The probate position has changed, and most commentary has not caught up. Section 213 of the Indian Succession Act, 1925 barred a legatee or executor from establishing a right in court without a grant of probate or letters of administration. It was omitted by the Repealing and Amending Act, 2025 (Act 37 of 2025), assented on 20 December 2025 and, containing no commencement provision, effective from that date. Probate remains available and is still worth taking where an institution or a registrar wants it, but it is no longer a jurisdictional precondition.
Even before that, the requirement was narrower than it is usually described. For Hindus, Buddhists, Sikhs and Jains it attached only to wills within clauses (a) and (b) of section 57 — wills made within the territories formerly subject to the Lieutenant-Governor of Bengal or within the ordinary original civil jurisdiction of the High Courts at Madras and Bombay, or wills made outside those limits so far as they related to immovable property situated inside them. A will made in Ahmedabad, dealing with Gujarat property, fell in clause (c) and never needed probate at all. Section 57 itself survives and still governs which provisions apply to such wills. Section 213 has gone, with consequential amendments to sections 3 and 370 of the same Act.
Registration of a will has never been compulsory. Section 18(e) of the Registration Act, 1908 lists wills among the documents of which registration is optional, and that is the direct answer; the clauses of section 17 that might otherwise catch a disposition of immovable property are confined to non-testamentary instruments.
How is a private family trust taxed?
This is where the tax answer starts to bite, and where the attraction of the vehicle and its cost pull against each other.
A trustee is a representative assessee under section 303(1)(d) in respect of income received on behalf of or for the benefit of any person under a trust declared by a duly executed instrument, testamentary or otherwise. Section 304(1) makes the trustee subject to the same duties and liabilities as if the income were his own, assessed in his own name but in a representative capacity, with tax levied “in like manner and to the same extent” as on the beneficiary. Section 304(3) preserves the Department’s option to assess the beneficiary directly instead.
Then comes the charge that decides most structures:
- Section 307(1) — the income is chargeable at the maximum marginal rate where it is not specifically receivable on behalf of any one person, or where the individual shares of the beneficiaries are indeterminate or unknown.
- Section 307(3) — any part of the income consisting of profits and gains of business is chargeable at the maximum marginal rate, whatever the shares.
- Section 308 — an oral trust is charged at the maximum marginal rate outright.
Section 307(4) carves one narrow exception out of the business-income charge: where those profits are receivable under a trust declared by will exclusively for the benefit of a relative dependent on the settlor for support and maintenance, and that is the only trust so declared by him, association-of- persons rates apply instead.
Section 307(2) preserves association-of-persons rates in a short list of cases: where no beneficiary has other income above the exemption limit and is not a beneficiary under any other trust; where the trust is declared by will and is the only trust so declared by that person; where a non-testamentary trust was created before 1 March 1970 bona fide for the settlor’s dependent relatives; and for certain employee benefit funds. Section 2(70) defines the maximum marginal rate as the rate applicable to the highest slab for an individual, association of persons or body of individuals, including surcharge.
Read together, these produce the central trade-off. A specific trust, in which each beneficiary’s share is fixed and identifiable on the date of the deed, is taxed as if the beneficiaries held the income themselves — at their own rates. A discretionary trust, in which trustees decide who gets what, is taxed at the top rate. Families want discretion precisely because circumstances change; the Act prices that discretion at the maximum marginal rate.
Two further provisions decide whether the structure works at all.
Settling assets into the trust. Section 92(3)(h) excludes from the receipt charge any sum or property received “from an individual by a trust created or established solely for the benefit of relative of the individual”. The word solely is doing work: a trust with even one beneficiary outside the definition of relative in section 92(5)(g) falls outside the exclusion, and the trust — which has no relatives of its own — cannot fall back on section 92(3)(a).
Revocability and clubbing. Section 97(1) taxes income arising by virtue of a revocable transfer in the hands of the transferor. Section 98(b) deems a transfer revocable if it contains any provision for re-transfer of income or assets to the transferor, or in any way gives him a right to re-assume power over them. Section 97(2) relieves only where the trust is not revocable during the lifetime of the beneficiary and the transferor derives no direct or indirect benefit; section 97(3) brings the income back to the transferor as and when a power to revoke arises. Section 99 separately clubs income arising to any person or association of persons from assets transferred otherwise than for adequate consideration, to the extent the income is for the immediate or deferred benefit of the transferor’s spouse or son’s wife.
A settlor who keeps a power to revoke, or a benefit, has built a structure that is taxed as if he had never settled anything.
How long can a family trust last?
Shorter than most families assume, and this is the limit most often missed.
Section 14 of the Transfer of Property Act, 1882 provides that no transfer of property can create an interest taking effect after the lifetime of one or more persons living at the date of the transfer, and the minority of some person in existence at the expiration of that period, to whom the interest is to belong if he attains full age.
Section 18 exempts transfers “for the benefit of the public” in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind. A private family trust is not that, and gets no relief.
One refinement matters if the trust is created by will rather than during lifetime. Section 5 of the Transfer of Property Act confines “transfer of property” to an act by which a living person conveys property to other living persons, so section 14 does not reach a testamentary trust. The equivalent restriction for bequests is section 114 of the Indian Succession Act, 1925, applied to Hindu wills through section 57 and Schedule III, and it is drawn in materially the same terms.
India therefore has no perpetual private trust. The period is lives in being plus a minority — not the twenty-one years of English law — and a deed drawn to run indefinitely down a bloodline is void to that extent. A family that wants continuity beyond the period has to plan for the trust to vest and, if necessary, be re-settled. Any advice premised on a dynasty trust of the kind marketed in some other jurisdictions is wrong for India.
What does an LLP actually solve?
Not a tax problem. A control problem — and it does that by statute rather than by drafting ingenuity.
Section 42(1) of the Limited Liability Partnership Act, 2008 makes a partner’s right to a share of profits and losses, and to receive distributions, transferable wholly or in part. Section 42(2) provides that such a transfer does not by itself cause disassociation of the partner or dissolution of the LLP. Section 42(3) is the operative one:
The transfer of right pursuant to this section does not, by itself, entitle the transferee or assignee to participate in the management or conduct of the activities of the limited liability partnership, or access information concerning the transactions of the limited liability partnership.
So economic value can be moved to the next generation while control stays where the LLP agreement puts it. Nothing in a will or an ordinary trust deed achieves that separation as cleanly, because it is the statute doing the work.
On the tax side an LLP is simply a firm. Section 2(45) defines “firm” to include a limited liability partnership as defined in the LLP Act, and sections 2(74) and 2(75) do the same for “partner” and “partnership”. Section 324 charges a firm at the rate specified in the relevant Central Act; section 325 requires the partnership to be evidenced by an instrument specifying individual shares, failing which section 326 disallows any deduction for interest, salary, bonus, commission or remuneration paid to a partner.
Two charges deserve attention in a succession context, because they fire on events a family may think of as internal housekeeping:
- Section 8 deems the entity to have transferred a capital asset or stock-in-trade to a partner who receives it in connection with dissolution or reconstitution, with fair market value on the date of receipt as the full value of consideration.
- Section 67(10) charges the entity on money or a capital asset received by a partner in connection with reconstitution, computed as A = B + C − D, where D is the balance in the partner’s capital account, calculated without any increase from revaluation or self-generated goodwill. Section 67(10)(d) provides that this operates in addition to section 8, each worked out independently.
Admitting children as partners and retiring a parent is a reconstitution. It is not a neutral event.
Section 70(1)(ze) excludes conversion of a private or unlisted public company into an LLP from the capital gains charge, but on seven conditions — including that turnover in any of the three preceding tax years did not exceed sixty lakh rupees, that the value of assets did not exceed five crore rupees, that shareholders’ aggregate profit share stays at or above 50% for five years, and that no accumulated profit is paid out to any partner for three years. For most promoter companies the turnover and asset thresholds put this route out of reach.
On whether a minor can be a partner, the Act is silent. The proviso to section 5 of the LLP Act disqualifies only persons of unsound mind, undischarged insolvents and pending insolvency applicants, and minority is not among them. But partnership in an LLP arises by agreement — section 2(1)(q) and section 23 — and a minor is not competent to contract under section 11 of the Indian Contract Act, 1872. Unlike section 30 of the Indian Partnership Act, 1932, the LLP Act has no mechanism for admitting a minor to the benefits of partnership only. The better view is that a minor cannot be admitted, though there is no statutory prohibition and no decided authority on the point.
What happens on partition of an HUF?
Where an HUF already exists, this is the cheapest route of the four, and the only one with a statutory answer at both ends.
Section 70(1)(a) provides that the capital gains charge does not apply to a transfer by way of distribution of capital assets on the total or partial partition of a Hindu undivided family. Section 92(3)(g) lists section 70(1)(a) among the transactions whose receipt falls outside the charge in section 92(2)(m). No gain in the family’s hands, no receipt charge in the coparcener’s.
The difficulty is at the other end, in assessment status. Section 315(1) deems a family hitherto assessed as undivided to continue as an HUF except where a finding of partition has been given, and section 315(3) requires the Assessing Officer to record whether a total or partial partition has taken place. Section 315(8) then provides that where a partial partition has taken place after 31 December 1978, the claim shall not be inquired into, no finding shall be recorded, any finding already recorded is null and void, the family continues to be assessed as if no partial partition had occurred, and the members and the family are jointly and severally liable for the family’s dues.
So the Act excludes a partial partition from the charge on capital gains while refusing to recognise it for assessment purposes. A family that divides part of its property continues to be assessed as undivided on the whole.
Who the coparceners are is now settled and wider than many family arrangements assume. Section 6 of the Hindu Succession Act, 1956, as substituted by the 2005 amendment, makes the daughter of a coparcener a coparcener “by birth… in her own right in the same manner as the son”, with the same rights and the same liabilities. In Vineeta Sharma v. Rakesh Sharma, (2020) 9 SCC 1, the Supreme Court held that because the right is by birth it is not necessary that the father be living on 9 September 2005, overruling Prakash v. Phulavati, (2016) 2 SCC 36, and Mangammal v. T.B. Raju, and partly overruling Danamma v. Amar, (2018) 3 SCC 343. The Court also held that a plea of partition resting on oral evidence alone is to be rejected.
Two consequences follow for anyone planning a partition now. A partition that omits daughters is not a partition of the coparcenary. And the Explanation to section 6(5) recognises, for the purposes of that section, only a partition effected by a registered deed or by a decree of court — so an unregistered family memorandum, however genuine between the parties, does not engage the 20 December 2004 cut-off in section 6(5).
Whether a daughter may be karta has not been decided by the Supreme Court. The Delhi High Court held that she may in Sujata Sharma v. Manu Gupta, affirmed by a Division Bench on 4 December 2023, reasoning that the right to manage is incidental to ownership and that the 2005 amendment redefined coparcenary to encompass all its incidents. That reasoning sits comfortably with CIT v. Seth Govindram Sugar Mills, AIR 1966 SC 24, which held that a widow cannot be karta precisely because coparcenership is a necessary qualification for managership — a widow is a member but never a coparcener, whereas a daughter now is. Outside Delhi the decision is persuasive rather than binding, and banks and registrars may still resist a female karta.
The four side by side
| Will | Private family trust | LLP | HUF partition | |
|---|---|---|---|---|
| Tax on the transmission | None; s.92(3)(c) | None on settlement if s.92(3)(h) is met | Reconstitution charges under s.8 and s.67(10) can apply | None; s.70(1)(a) and s.92(3)(g) |
| Who is taxed on income afterwards | Executor during administration (s.312), then the legatee | Trustee as representative assessee (ss.303, 304); MMR under s.307(1)/(3) if discretionary or business income | The LLP, as a firm (s.324) | The divided members |
| Takes effect | On death | On settlement, during lifetime | On execution of the agreement | On partition |
| Control after the event | Passes with the property | Trustees, on the terms of the deed | Separable: economic rights transfer, management does not (LLP Act s.42) | Passes with the divided share |
| Duration limit | Bequests subject to ISA s.114 | TPA s.14 (or ISA s.114 if by will); no perpetual private trust | Indefinite, subject to two partners (LLP Act s.6) | — |
| Formalities | Writing and attestation; registration optional (Registration Act s.18); probate no longer a precondition | Registered non-testamentary instrument, or declaration by will, for immovable property (Trusts Act s.5) | Incorporation and agreement filed with the Registrar | Registered deed or court decree for HSA s.6(5); registration under Registration Act s.17(1)(b) where immovable property is involved |
| Principal weakness | Operates only on death; contestable | Maximum marginal rate on discretion; perpetuity limit | Reconstitution charges; not a holding vehicle for passive family assets | Available only where an HUF exists; partial partition unrecognised after 31.12.1978 |
What should decide the choice?
Not the tax on transmission, because there is none worth planning around. Four other things decide it.
Whether control must survive the transfer. If the answer is yes — and for a promoter it usually is — the LLP’s section 42 separation is the only one of the four that delivers it by statute rather than by drafting. A trust can do it through trustee powers, but at the cost of the maximum marginal rate wherever the discretion is real.
Whether the arrangement must work during lifetime or only on death. A will does nothing until death and can be challenged then, when the person best able to explain it is unavailable. A trust, an LLP and a partition all operate now, and are correspondingly harder to unpick later.
Whether an HUF already exists. If it does, partition is the cheapest and cleanest transmission available, with a statutory answer at both ends. If it does not, creating one to obtain that treatment is a much longer conversation than this note.
What the assets are. Business income in a trust attracts the maximum marginal rate under section 307(3) unless the narrow exception in section 307(4) applies — a trust declared by will exclusively for a dependent relative, and the only such trust declared by that person. Outside that exception a trust is a poor holder of an operating business and a reasonable holder of passive assets. An LLP is the reverse.
Two limits are worth stating to any family before the drafting starts, because both are commonly assumed away: no private trust in India can be perpetual, and a partial partition of an HUF effected today will not be recognised for assessment purposes however carefully it is documented.
Sources. Income-tax Act, 2025: section 2, section 8, section 67, section 70, section 92, section 97, section 98, section 99, section 302, section 303, section 304, section 307, section 308, section 312, section 315, section 324, section 325, section 326. Other legislation: Repealing and Amending Act, 2025 (Act 37 of 2025); Registration Act, 1908; Transfer of Property Act, 1882; Limited Liability Partnership Act, 2008; Hindu Succession (Amendment) Act, 2005; Indian Succession Act, 1925, section 57; Indian Trusts Act, 1882, sections 5 and 6; Budget Speech 1985-86 (abolition of estate duty). Judgments: Vineeta Sharma v. Rakesh Sharma, (2020) 9 SCC 1; Manu Gupta v. Sujata Sharma (Delhi HC, DB, 4 December 2023); CIT v. Seth Govindram Sugar Mills, AIR 1966 SC 24. Stamp duty is a State subject and is not addressed here. This note states the general position and is not advice on any particular arrangement.
This note is general commentary on the law as at 12 September 2026 and is not advice on any matter. The position in a particular case depends on its own facts.