Govt considering overhaul of the Indian Trusts Act, 1882
Last updated: 12 September 2007
The government is considering an overhaul of the Indian Trusts Act, 1882, which would allow more flexibility to trusts in their investment decisions. The move is aimed at making the pre-independence law more contemporary. At present, registered trusts can invest their funds either in securities notified by the government or authorised by the trust’s charter or under a high court ruling. This holds true even for AAA-rated bonds.
While newer trusts have tried to provide maximum flexibility to their investment options through their charter, older ones, particularly cash-rich religious trusts, have been deprived of this chance. This category of trusts will now have greater freedom, including looking at capital markets.
“While it is clear that these provisions should be removed from the law, we are seeking legal opinion on whether the investment options prescribed are sufficient enough in today’s context. Depending upon the legal opinion, the government would propose amendments,” said a government official. Opinion is being sought on whether the provision should be simplified to “a class of securities”.
Section 20(f) of the 1886 statute prescribes investment options and has references to the British Crown, the securities issued by the then governor general and by the local bodies in regions like Rangoon and Karachi that are no longer part of India. The proposal to amend the Trusts Act originally came from the Law Commission of India.
“There are a few thousand trusts in the country, of which about 400 are very big and have phenomenal resources. A significant part of them are older ones and may not have framed their charters with wide-ranging investment options. Giving them more flexibility could lead to greater fund flows into useful instruments like infrastructure bonds. This would also help the economy,” said Institute of Chartered Accountants of India (ICAI) former president TN Manoharan.
ICAI is working with the home ministry in creating awareness about foreign contribution regulations among different entities, including trusts. Trusts find it difficult to utilise the huge quantum of funds they receive for welfare measures. They are supposed to invest 85% of the money received in a year in specified securities that year itself. If this is not possible, they can accumulate funds for five years and invest subsequently, according to the Income-Tax Act. For specific investments, they are provided I-T exemptions, although the concession is not available for investments in shares of a private limited company.
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