Section 337 identifies categories of income that lose exemption and are taxed at the Maximum Marginal Rate — primarily when a trust's income benefits trustees, founders, or their relatives personally, or when funds are invested in prohibited modes, or when the trust violates registration conditions.
Registered NPOs where income is applied for the personal benefit of specified persons (trustees, authors of trust, relatives) or where conditions of registration are violated.
Scenario
A registered charitable trust has regular income of ₹60 lakh. A managing trustee is given use of a trust-owned flat worth ₹25 lakh annual rental value without paying any rent.
Calculation
Total regular income: ₹60,00,000 Specified income (benefit to trustee): Rental value of flat given free: ₹25,00,000 Tax at MMR (30%): ₹ 7,50,000 Remaining income (₹35 lakh): Applied to objects (>85%): → Exempt Total before cess: ₹ 7,50,000 Cess (4%): ₹ 30,000 Total tax: ₹ 7,80,000
Result
The trust pays ₹7.80 lakh because of the trustee's personal benefit. All trustees should pay fair market rent for any trust property they use — even nominal amounts matter legally.
Still have questions about Section 337?
Our tax team can explain how this provision applies to your specific situation.
Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.