India 2026, Income Tax Act & Corporate Law Amendments: What Trustees, Executors and Families Must Do Now

Last updated: 11 May 2026

Estate planning India entered a new era on 1 April 2026 when the Income Tax Act 2025 came into force, replacing the six-decade-old 1961 statute with a consolidated code that redefines how family trusts are categorised, taxed and reported. Simultaneously, the Corporate Laws (Amendment) Bill 2025, notified by the Ministry of Corporate Affairs, has introduced a formal conversion pathway that allows specified trusts to restructure as limited liability partnerships (LLPs), a route that was previously unavailable without triggering adverse gift-tax consequences.

Together, these changes demand immediate action from trustees, executors, high-net-worth families and the advisers who serve them: existing trust deeds, Wills, nomination forms and power-of-attorney arrangements must all be reviewed against the new statutory framework within the next 90 days to avoid unintended tax exposures and compliance gaps.

Executive Summary: What Changed and What to Do Immediately

The twin legislative changes effective from the 2026–27 assessment year reshape three pillars of estate planning India practitioners rely on: trust taxation, corporate-vehicle structuring and succession documentation. Below is a short digest of the headline shifts, followed by a quick-action checklist that every trustee and family office should implement without delay.

The Income Tax Act 2025 introduces a sharper classification of “specified trusts,” tightens deemed-accrual rules on undistributed income, and broadens the reporting obligations imposed on trustees. The corporate laws amendment 2026 provisions, meanwhile, create a statutory mechanism for converting eligible private trusts into LLPs, subject to valuation, beneficiary consent and MCA filings. For Wills and succession planning India families, the interaction between testamentary trust clauses and the new tax code means that many existing instruments will need updating to remain tax-efficient.

Quick-Action Checklist, Five Immediate Steps

• Convene a trustee meeting within 30 days. Review the trust deed against the Income Tax Act 2025’s classification of specified trusts and identify any provisions that create unintended tax exposure under the new regime.
• Obtain independent valuations of trust assets. The new conversion-to-LLP route and updated reporting rules require current fair-market valuations, start this process now to meet filing deadlines for the 2026–27 assessment year.
• Audit existing Wills for testamentary trust clauses. Any Will that creates a trust on death must be checked against the new tax treatment of specified trusts; an outdated clause could expose beneficiaries to the maximum marginal rate.
• Review nomination and power-of-attorney arrangements. Ensure nominations on bank accounts, demat accounts and mutual-fund folios align with the Will and with updated trust structures.
• Engage qualified private-client counsel. The legislative changes are interconnected, a tax-only or corporate-only review is insufficient. Appoint an adviser who can coordinate across both statutes. The Global Law Experts lawyer directory is a starting point for identifying specialists.

The Income Tax Act 2025: Material Changes Affecting Estate Planning India

The Income Tax Act 2025, notified in the Gazette of India and effective from 1 April 2026, consolidates and replaces the Income Tax Act 1961. For private-client practitioners, the most consequential changes relate to trust taxation, gift and transfer provisions, and anti-abuse rules targeting family structures. The Ministry of Finance has described the new code as a modernisation aimed at reducing litigation and simplifying compliance, but the practical effect for family trusts India structures is a significantly tighter regulatory environment.

Trust Taxation, Key Provisions Under the Income Tax Act 2025

The 2025 Act introduces a clearer statutory definition of “specified trusts,” encompassing private discretionary trusts, revocable trusts and trusts where the settlor retains significant control or benefit. Under the previous 1961 Act, the distinction between determinate and indeterminate beneficiaries governed whether income was taxed in the hands of the trust or the beneficiary. The new framework sharpens this classification and introduces additional conditions under which undistributed trust income is deemed to accrue to the trust itself and is taxed at the maximum marginal rate.

Industry observers expect the practical effect to be that many family trusts India that previously relied on passing through income to beneficiaries at their individual slab rates will now need to restructure distribution timing or reconsider the trust vehicle altogether. Trustees must also comply with expanded annual reporting requirements to the Central Board of Direct Taxes (CBDT), including a schedule of beneficiaries, distributions made and assets held, with stricter penalties for non-compliance.

For illustrative purposes: a private discretionary trust holding rental property that previously distributed income annually to beneficiaries in the lowest slab may, under the 2025 Act, find that any retained income is now taxed at the maximum marginal rate at the trust level if distributions are not made within the assessment year. The difference in effective tax cost can be substantial and underscores the urgency of reviewing distribution policies immediately.

Gift and Transfer Tax Rules, Inter Vivos vs Testamentary

The Income Tax Act 2025 retains the broad framework of taxing gifts received without consideration (or with inadequate consideration) above specified thresholds. However, the new code consolidates the provisions on gifts and tax India into a single, more detailed chapter that clarifies the treatment of transfers into and out of trusts. Transfers of assets into a trust by the settlor may now trigger deemed-gift provisions where the consideration is below fair market value, even where the transfer is to a family trust in which the settlor is a beneficiary.

Testamentary transfers, assets passing under a Will on death, continue to be exempt from income tax in the hands of the recipient. However, where a Will creates a testamentary trust (rather than an outright bequest), the income earned by that trust post-death falls squarely within the new specified-trust regime. This is a critical distinction for wills and succession planning India: a Will that creates a trust for minor children or elderly dependants must now be drafted with the 2025 Act’s classification criteria firmly in mind.

Corporate Laws (Amendment) 2025–26: Trusts Conversion to LLP and Structural Options

The Corporate Laws (Amendment) Bill 2025, notified by the Ministry of Corporate Affairs (MCA), addresses a longstanding gap in Indian private-client structuring: the absence of a clear statutory pathway for converting a family trust into a limited liability partnership. The amendment creates a defined conversion route for specified trusts that meet eligibility criteria, including unanimous beneficiary consent, an independent valuation report and compliance with LLP Act provisions.

This trusts conversion to LLP mechanism is significant because it allows families to migrate from a trust structure, which now faces tighter taxation under the Income Tax Act 2025, into an LLP, which benefits from pass-through taxation and greater flexibility in profit-sharing arrangements. Early indications suggest that families with business-holding trusts and those seeking clearer governance frameworks are likely to be the first movers.

Legal Route to Convert a Family Trust to an LLP

The conversion process under the corporate laws amendment 2026 provisions involves several sequential steps. At a high level, the trust must first confirm eligibility (the trust must be a “specified trust” as defined in the LLP amendment rules, and all beneficiaries must provide written consent). An independent registered valuer must then prepare a valuation report of all trust assets. The trustees file a conversion application with the Registrar of Companies, accompanied by the trust deed, valuation report, beneficiary-consent letters and a proposed LLP agreement. Following MCA review and approval, the trust’s assets and liabilities vest in the newly formed LLP by operation of law.

For a deeper exploration of LLPs in India, including formation requirements and compliance obligations, readers may consult the linked explainer.

Practical Issues, Governance, Asset Transfers, Valuation and Minority Protections

The conversion route, while welcome, introduces practical complexities that families must navigate carefully. Governance structures change fundamentally: trust beneficiaries become designated partners in the LLP, with fiduciary duties that differ from those owed under trust law. Asset transfers, particularly immovable property, may attract stamp duty at state level even if the conversion is treated as tax-neutral for income-tax purposes, because stamp-duty legislation varies by state and is not automatically aligned with central amendments. Valuation disputes between beneficiaries can delay or derail the conversion; families should appoint the valuer early and agree the methodology in advance.

Minority-beneficiary protections also deserve attention: unlike a trust where the trustee owes duties to all beneficiaries equally, an LLP’s profit-sharing and decision-making mechanisms are governed by the LLP agreement, which must be carefully drafted to protect smaller stakeholders.

How the 2026 Tax Changes Affect Wills, Nominations and Probate

The interaction between the Income Tax Act 2025 and existing succession instruments is one of the most urgent compliance areas for estate planning India practitioners. Wills drafted before April 2026 that contain testamentary trust clauses, directing executors to hold assets in trust for minor children, elderly dependants or charitable purposes, must be reviewed against the new specified-trust classification. If those clauses create a trust that falls within the 2025 Act’s tighter regime, beneficiaries could face significantly higher tax burdens than the testator intended.

Do I Need to Update My Will Because of the 2026 Tax and Corporate Law Changes?

In most cases, the answer is yes, or at the very least, the Will should be professionally reviewed. The triggers that make an update necessary include: the Will creates a testamentary trust (for minors, dependants or otherwise); the Will references tax provisions of the 1961 Act (which is now repealed); the Will directs executors to transfer assets into an existing family trust whose structure may need to change; or the Will fails to address nomination-versus-ownership conflicts on financial assets. Even Wills that make only outright bequests should be checked to confirm that the named executors are still appropriate and that the probate jurisdiction has not changed because of the testator’s relocation.

Nominations on bank accounts, demat accounts, insurance policies and mutual-fund folios are not substitutes for a Will under Indian law, a nomination merely designates who may receive the asset upon death for administrative convenience, not who ultimately owns it. The 2026 changes do not alter this legal position, but the heightened focus on compliance means families should ensure that nominations and the Will are aligned to avoid disputes and delays. SEBI’s investor-education guidance reinforces that nomination does not confer beneficial ownership and that a Will prevails over a nomination in the event of conflict.

Probate Process India, Practical Timelines and Costs

The probate process India requires varies by jurisdiction. Probate is mandatory in the states of West Bengal, Mumbai (city and suburban districts of Maharashtra) and Chennai (Madras), and for all Wills executed by Hindus in these jurisdictions. Outside these areas, a probate is not strictly required for a registered Will, but banks and registrars increasingly request it before releasing high-value assets. For a detailed analysis of jurisdictional variations, readers may consult the guide on whether probate is mandatory in India.

Typical timelines range from six months to over two years in contested matters, and court fees vary by state (generally calculated as a percentage of the estate value, often around two per cent up to a capped amount). Families with assets in multiple Indian states, or across multiple countries, should plan for parallel proceedings. For cross-border estates, coordinating Wills across jurisdictions is essential; guidance on this is available in the article on how to coordinate wills for assets across multiple countries.

Estate Planning Checklist India: Practical Actions for Trustees, Executors and Family Offices

Effective estate planning India requires structured, time-bound action, not a single review but an ongoing programme of compliance. The checklist below is organised by role and by a 30/60/90-day priority timeline to help families and their advisers implement the 2026 changes systematically.

Trustee-Specific Tasks

• Days 1–30: Convene a formal trustee meeting. Minute the review of the Income Tax Act 2025’s impact on the trust, identify classification under the new specified-trust provisions, and resolve whether distributions need to be accelerated or the trust structure needs to change.
• Days 1–30: Commission independent asset valuations. Engage a registered valuer for immovable property, unlisted securities and any other assets held in trust. These valuations will be needed for CBDT reporting, potential LLP conversion and for updating beneficiary records.
• Days 31–60: Update trust records and file required reports. Ensure the trust’s PAN, registration with the income-tax authorities and annual return filings are current. Prepare the expanded beneficiary schedule now mandated by the CBDT.
• Days 31–60: Evaluate the LLP conversion option. If the trust holds business assets or investment portfolios that would benefit from pass-through taxation, instruct counsel to prepare a conversion-feasibility analysis under the corporate laws amendment 2026 provisions.
• Days 61–90: Implement structural changes or confirm the status quo. If the decision is to retain the trust, update the deed as necessary (e.g., amending distribution clauses to avoid the maximum-marginal-rate trap). If converting to an LLP, initiate the MCA filing process.

Executor-Specific Tasks

• Days 1–30: Audit the Will for testamentary trust clauses. Identify any clause that creates a trust on death and assess it against the 2025 Act. If the Will references repealed provisions of the 1961 Act, flag this for immediate amendment.
• Days 1–30: Verify nomination alignment. Cross-check nominations on every financial asset (bank, demat, insurance, mutual funds) against the Will’s bequests. Resolve any conflicts before they become post-death disputes.
• Days 31–60: Confirm probate jurisdiction and estimate costs. If the testator has relocated since drafting the Will, confirm which court has jurisdiction and whether probate is mandatory. Obtain a cost estimate including court fees, lawyer fees and valuation costs.
• Days 61–90: Update the Will and register if possible. Execute the updated Will with proper attestation. While registration of a Will is not mandatory in India, a registered Will carries stronger evidentiary weight, particularly relevant where the estate includes immovable property. For guidance on handwriting and signature examination on wills, including authentication and dispute-prevention measures, the linked resource provides useful context.

Gifting, Inter Vivos Transfers and Succession Planning: Tax and Anti-Abuse Considerations

The Income Tax Act 2025 consolidates anti-abuse provisions aimed at gifts and tax India transactions that have historically been used to shift wealth between family members at minimal tax cost. Understanding these rules is now essential for anyone engaged in estate planning India, because missteps can result in deemed-income assessments and penalties.

Family Trusts and Distributions, Tax at the Trust Level vs Beneficiary Level

Under the 2025 Act, the taxation of family trusts India depends on whether the trust qualifies as a “specified trust” and, if so, whether income is distributed to beneficiaries within the relevant assessment year. Where income is retained, whether by design or because the trust deed restricts distributions, the trust itself is assessed at the maximum marginal rate. Where income is distributed to identifiable beneficiaries in the same year it accrues, the income may be taxed in the beneficiaries’ hands at their individual slab rates, provided the trust meets certain transparency and reporting conditions.

This creates a significant planning lever: trustees who accelerate distributions can reduce the overall family tax burden, but only if the trust deed permits timely distribution and if the beneficiaries are Indian residents whose income falls in lower slabs. For trusts with NRI beneficiaries, the analysis is more complex, as withholding obligations and treaty benefits must also be considered.

When Gifts Trigger Reporting or Tax, Key Triggers

The following transactions are most likely to attract scrutiny under the 2025 Act’s gift and transfer provisions:

• Transfers into a trust at below fair market value. If the settlor transfers an asset valued at ₹50 lakh into a trust for inadequate consideration, the shortfall may be treated as a deemed gift and taxed accordingly.
• Indirect gifts via trust distributions. Where a trust makes a distribution to a beneficiary that exceeds the beneficiary’s proportionate share of income, the excess may be treated as a gift from the other beneficiaries, triggering income in the recipients’ hands.
• Revocable trust settlements. The 2025 Act treats the settlor of a revocable trust as the owner of the trust’s assets for income-tax purposes. Any income earned by the trust is clubbed with the settlor’s income, regardless of whether distributions are made.
• Gifts between family members exceeding threshold limits. While gifts between specified relatives remain exempt, gifts from trusts to beneficiaries who do not qualify as “relatives” of the settlor may not benefit from the exemption and should be reviewed.

Families should conduct a comprehensive gift and transfer audit, documenting every inter-vivos transfer made into or out of family trusts over the past five years and confirming the tax position under the new code. Where corrections are needed, for example, where past transfers were not reported or were reported under provisions that no longer apply, early voluntary disclosure to the CBDT is strongly advisable.

Case Studies: Illustrative Scenarios and Decision Paths

The following scenarios are anonymised and illustrative. They are not legal advice and are intended solely to demonstrate how the 2026 legislative changes might affect common estate-planning structures. Actual outcomes depend on individual circumstances.

Scenario A, Retain the trust. A Mumbai-based family holds a private discretionary trust established in 2015, with rental properties generating ₹1.2 crore per annum. The trust distributes all income annually to four beneficiaries in the lowest slab. Under the 2025 Act, if all distributions are made within the assessment year and the trust meets expanded reporting requirements, the family can preserve the current pass-through taxation. The trustees convene, update the deed to mandate in-year distribution, and file the expanded CBDT schedule. No structural change is needed, but the deed amendment and reporting compliance are non-negotiable.

Scenario B, Convert to LLP. A Delhi-based family trust holds a portfolio of unlisted equity investments and operates a family-run manufacturing business through the trust. The settlor’s children, now adults, wish to formalise governance and attract external capital. The trust qualifies for conversion under the MCA’s corporate laws amendment 2026 provisions. The family commissions valuations, obtains unanimous beneficiary consent and files the conversion application. The LLP provides pass-through taxation, a flexible partnership agreement and the ability to admit external partners in the future. Stamp-duty implications on the transfer of immovable property held by the trust are assessed state by state.

Scenario C, Update the Will. A Kolkata-based testator’s Will, drafted in 2018, creates a testamentary trust for two minor grandchildren, directing that income be accumulated until they reach 25. Under the 2025 Act, that accumulated income would be taxed at the maximum marginal rate each year. On advice, the testator amends the Will to direct outright bequests to the grandchildren (with a guardian clause for minors) and removes the testamentary trust. The revised Will is registered at the sub-registrar’s office.

Conclusion: Recommended Timeline and Next Steps for Estate Planning India

The Income Tax Act 2025 and corporate laws amendment 2026 together represent the most significant overhaul of estate planning India rules in a generation. Inaction is not a neutral choice: trusts that were compliant under the 1961 Act may now face higher taxes, reporting penalties or structural misalignment. The recommended path forward is clear and time-bound.

Within 30 days, every trustee and family office should convene a review meeting, commission valuations and audit existing Wills. Within 60 days, structural decisions, retain the trust, convert to an LLP, or unwind, should be made with the benefit of coordinated tax and corporate advice. Within 90 days, updated documents should be executed, filed and registered where applicable. Families with cross-border assets or NRI beneficiaries face additional complexity and should engage counsel early.

This article is provided for general informational purposes only and does not constitute legal or tax advice. Readers should seek independent professional counsel before taking any action based on the matters discussed here.

Sources

1. Ministry of Finance, Official Press Releases and Income Tax Act 2025 Summary
2. Central Board of Direct Taxes (CBDT), Guidance, Notifications and Circulars
3. Ministry of Corporate Affairs, Corporate Laws (Amendment) Bill and LLP Notifications
4. SEBI, Investor Guidance on Wills and Estate Planning
5. Kotak Private, Estate Planning in India Insights
6. Willjini, Estate Planning in India: Process and Advantages