Indira Gandhi, who presented the Union Budget for 1970-71 pinned down private trusts for tax evasion in her speech. In a rather stern and vocal criticism, Indira Gandhi called private trusts "one of the major devices" of tax evasion. She even went on to levy a flat tax rate on discretionary trusts.
When Indira Gandhi presented the Budget, private trusts were enjoying lower rates of taxation, something the former Prime Minister credited for the rapid increase in their number. Gandhi who had the task of managing a struggling economy was trying to rope in various ways of taxations. She announced that discretionary trusts would be taxed 65 per cent flat rate and 1.5 per cent on their wealth or rates applicable to individuals, whichever is higher.
During her Union Budget speech, Gandhi said, "One of the major devices leading to tax evasion and avoidance is the creation of private trusts. At present discretionary trusts are taxed on their income and wealth at the rates applicable to individuals. These lower rates lead to the proliferation of such trusts. It is proposed that in future, discretionary trusts would be taxed at a flat rate of 65 per cent on their incomes and 1.5 per cent on their wealth or at the rates applicable in the case of individuals, whichever is higher. Provision is, however, being made for exemption from these flat rates for certain categories of existing discretionary trusts."
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Furthermore, she made the following announcement: In the case of charitable and religious trusts, exemption from tax would be allowed only in respect of income actually, applied to the purposes of the trust in the same year, or within three months of the close of the year. Further, the exemption will be forfeited altogether if the trust funds, constituting its corpus or income, are invested in a concern in which the author or founder of the trust or any of his relatives is substantially interested and the amount of the investment exceeds 5 per cent of the capital of that concern.
She added that these provisions would curb the use of the funds of charitable and religious trusts to acquire control over industry and business. Gandhi further said that some changes are being made to prevent indirect benefits enjoyed by the founders of such trusts.
On July 5, 2019, India's new Finance Minister Nirmala Sitharaman will present the Union Budget. As all eyes are on her, it remains to be seen how she steers the Indian economy.