Trusts in India

CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)

11 August 2010

Trusts in India

Trust

A Non Profit Organization can register in India as a Society, under the Registrar of Societies or as a Trust, by making a Trust deed. Another option can be registration as a Section-25 Company under the Companies Act, 1956.

Whether it's a trust, society or a section-25 company, the Income Tax Act, 1961 gives all categories an equal treatment, in terms of exempting their income as well as granting 80G certificates, wherein donors to non-profit organizations can claim a rebate against the donations made.

The Non-profit organizations in India

Are present independently of the state;
They are self-governed by a board of trustees or a managing committee comprising individuals who normally serve in a fiduciary capacity;
Produce profits/benefits for others, who are generally outside the membership of the organization; and
Are 'non-profit-making' and are prohibited from distributing a monetary residual to own members.

Charitable Trust

In India, trusts that are set up for social causes and approved by the Income Tax Department, not only get exemption from payment of tax but also the donors can deduct the amount of donation such trusts from their taxable income.

Legal framework in India recognizes activities like "relief of poor, medical relief, education, and advancement of object of general public utility" as charitable purposes.

Legislation

Different states in India are having different Trusts Acts in force that govern the trusts in that state. In the absence of a Trusts Act for a particular state/territory the general principles of the Indian Trusts Act 1882 are applied.

Main Instrument

For any public charitable trust, the main instrument is the trust deed, wherein the aims, objectives and mode of management (of the trust) is enshrined. Also, the minimum and maximum number of trustees has to be specified in the deed. The trust deed should always clearly spell out aims and objects of the trust, how the trust is to be managed, how other trustees should be appointed or removed, etc. The trust deed is to be signed by both - the settler/s and trustee/s - in presence of two witnesses. The trust deed is to be executed on a non-judicial stamp paper, the value of the same would depend upon valuation of the trust property.

Trustees

A minimum of two trustees are required for a Trust. There is no upper limit to the number of trustees. Trustees are comprised in the Board of Management..

Application for Registration

The application for registration purpose should be made to the official having the jurisdiction over that region in which the trust is to be registered.
After providing details in the form regarding the designation by which the public trust will be known, names of trustees, mode of succession, etc., the applicant needs to affix a court fee stamp of Rs.2/- on the form and pay a very small registration fee which can range from Rs.3/- to Rs.25/-, depending upon the value of the trust property.
Applicant should sign the application form in front of the regional officer or superintendent of the regional office or the charity commissioner or a notary. The application form is to be submitted along with a copy of trust deed.
Two other documents - affidavit and consent letter - should be submitted at the time of making an application for registration.

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Registration Of Charitable Trust.

The trust should get itself registered [Form No. 10A for Application] with the Commissioner of Income-tax within one year from the date on which the trust is created.

The Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the aforesaid period. Where an application for registration is made after the aforesaid period, the provisions of sections 11 and 12 will apply from the date of the creation of the trust, if the Commissioner is satisfied that the person in receipt of income was prevented from making the application with the aforesaid period for sufficient reason. If, however, the Commissioner is not so satisfied, provisions of sections 11 and 12 will be applicable from the previous year in which application is made.

Section 12AA has been inserted with effect from the assessment year 1997-98 to provide for a procedure to be followed for grant of registration to a trust or institution. According to this, the Chief Commissioner or Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuiness of the activities of the trust or institution, he will pass an order granting registration and if he is not so satisfied, he will pass an order refusing registration, subject to the condition that an opportunity of being heard shall be provided to the applicant before an order of refusal to grant registration is passed by the Chief Commissioner or Commissioner and the reasons for refusal of registration shall be mentioned in such order.

The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief Commissioner or Commissioner and a copy of such order shall be sent to the applicant. The grant of registration shall be one of the conditions for grant of income-tax exemption.

The accounts of the trust should be audited (Form No. 10B) for such accounting year in which its income exceeds Rs. 50,000.

From the assessment year 1983-84 onwards, the funds of the trust should be invested or deposited in any one or more of the modes or forms mentioned in section 11(5).