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THINGS TO KNOW BEFORE YOU REGISTER-TRUST REGISTRATION IN INDIA

A Public Trust can be registered by registration of the trust deed with the registrar in any state as per the Relevant Trust Act in the respective State. Minimum 2 Members are required to form a trust and maximum there is no limit.

 
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INTRODUCTION

  • Trust is a Legal entity created by‘ trustor’ (first party) through which the ‘trustee’ (second party) holds the right to manage the trustor's assets or property for the benefit of the ‘beneficiary’ (third party).

  • Trust can be broadly classified into two categories:-

    1. Private Trust
    2. Public Trust

  • Public Trust

    Public trust is generally formed for charitable or religious purposes, and is not intended to do commercial activities. A public charitable trust is one, which benefits the public at large, or some considerable portion of it.

  • Private Trust

    Private Trust Private Trusts are created for the benefit of beneficiaries. Private Trusts are governed by the Indian Trusts Act-1882. A Private Trust may be created by will. If created by will, it shall be subject to the provisions of Indian Succession Act-1925.

  • Private Trust may be classified as under:

    1. Specific Private trust Where share of beneficiary is specific and definite
    2. Discretionary Private Trust Where beneficiary or individual share of beneficiary is undetermined
    3. Family Trust The term family trust refers to a privatediscretionary trust set up to hold a family's assets or to conduct a family business. Generally, they are established for asset protection or tax purposes.

  • Public-cum-Private Trust

    These are trusts whose part of the income may be applied for public purposes and a part may go to a private person.
    In respect of the portion of the income going to private person, it shall be assessable as income of private trusts. Therefore, normal provisions of tax applicable to private trust will apply to the above mentioned portion. And in respect of that portion of the income which is applied for public purposes, they shall be assessable as income of Public Trusts. Normal provisions of tax applicable to public trust will apply to that portion.

introduction

Benefits Of Trust Registration

Simple record-keeping and simple regulations

Low possibility of interference by the regulator

Exemption from tax due to charitable nature of operations

Donations to eligible charitable institutions are also deductible from taxable income of the donor

A trust can also be formed for the welfare of family members and relatives dependent upon the settlor. Besides, there is an ample scope of tax planning through private/family trusts

Applicability

  • Who can create a trust?

    As per Section 7 of the Indian Trusts Act, a trust may be created by every person competent to contract and by or on behalf of a minor, with the permission of a principal court of original jurisdiction.
    following are eligible to create a Trust:
    • Trust by an Hindu Undivided Family
    • Trust by a Minor
    • Trust by a Woman
    • Association of Persons
    • Company (e.g.: Debenture-Redemption Fund Trust for redemption of its debentures)

  • Who can be a Trustee in a trust?

    • A person can act as a trustee only when he is competent to contract
    • More than one person can be appointed as the trustee
    • Once a person is offered to become a trustee, it is not necessary that he or she necessarily accepts or is bound to accept the trusteeship
    • In absence of a trustee, the court may appoint a trustee for administration purposes

  • Who can be a Beneficiary in a trust?

    Every person capable of holding property may be a beneficiary. A beneficiary will normally be a natural person. S/he can be a minor, or under a mental disability. In fact many trusts are created specifically for these persons with some advantages. It is also possible to have trusts for unborn children, although the trusts must vest within the applicable perpetuity period.

Advantages

List Of Documents Required For Trust Registration

  • For registration of Trust Deed with the Local Registrar under the Indian Trusts Act-1882:

    • Trust Deed on stamp paper of requisite value
    • One passport size photograph and copy of the proof of identity of the settler
    • One passport size photograph and copy of the proof of identity of each of the two trustees
    • One passport size photograph and copy of the proof of identity of each of the two witnesses
    • Signature of settler on all the pages of the Trust Deed
    • Witness by two persons on the Trust Deed

  • For Registration of a Charitable trust under section 11 and 12 of the Income Tax Act-1961:

    • Application in the Form 10A in duplicate - as per Rule 17A of Income Tax Rules
    • Original instrument along with certified true copy under which it is created
    • In case of registered society, the registration certificate along with the objects and bylaws should be enclosed
    • In case of company, the Certificate of Incorporation and the MoA and AoA should be enclosed
    • Documents evidencing the creation of the trust/institution with one copy thereof
    • Two copies of statement of accounts of three previous years, where the voluntary organization was not in existence in any of three prior years, copies of the accounts of lesser numbers of years may be submitted

Difference between Public and Private Trust

FAQ

Most Frequent Questions And Answers

Individual or AOP

An Accumulation Trust is one where the Income of the Trust is not transferred or given to the Beneficiary but is accumulated to a certain period.
(Addl. CIT V M. K. Doshi (1979) 9 CTR (GUJ) 123, the Gujarat High Court)
The accumulated income, therefore, would be naturally, at the end of every year, capitalized and when available to the respective sharers would be more in the nature of capital and, therefore, a corpus and it, therefore, loses its characteristics of being an Income”
This decision of the Gujarat High Court has been affirmed by the Supreme Court in the case of CIT V M.R. DOSHI (1995) 211 ITR 1 (SC), holding that since the payment of income is to be made to the beneficiaries on attaining majority, no addition is to be made to the father’s income.

Yes. Available

Yes. Available.

 

The commissioner has the power to examine the documents of incorporation of the trusts and also the objects for which the trust is created. An order denying registration has to be a speaking order. This view has been endorsed by the judiciary.

The Trust(s) is required to apply in Form 10 under the Income Tax Rules specifying the objects for which the accumulated sums shall be applied. The filing shall be within the time allowed for the filing of its income tax return.

Whether stating general purposes will suffice, or specific objects are required to be stated, has been a subject of dispute and different courts have adopted different stands.

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