A Trust in India is a legal arrangement where a person (the Settlor/Author of the Trust) transfers ownership of assets to another person or entity (the Trustee) to hold and manage those assets for the benefit of a third party (the Beneficiary). It is primarily governed by the Indian Trusts Act, 1882.
Trusts are most commonly formed for charitable, religious, educational, or public welfare purposes (Public Trusts) or for the benefit of specific individuals or families (Private Trusts).
Key Components of a Trust
Settlor/Author
The person who creates the trust and transfers property to the trustee.
Trustee
The person(s) or entity appointed to hold the trust property and manage it according to the terms of the trust deed for the benefit of the beneficiaries. A trust must have at least one trustee, and there is no upper limit. Trustees have fiduciary duties to act in the best interest of the beneficiaries.
Beneficiary
The person(s) or entity for whose benefit the trust is created.
Trust Property/Subject Matter
The assets (movable or immovable, tangible or intangible) that are placed into the trust.
Trust Deed
The legal document that formally creates the trust. It outlines the purpose of the trust, the details of the settlor, trustees, and beneficiaries, the trust property, the powers and duties of the trustees, and how the trust will be administered.
Object of the Trust
The specific purpose for which the trust is created (e.g., promoting education, poverty relief, religious worship).
Types of Trusts in India
Public Trust
- Created for the benefit of the general public or a section of the public (e.g., for charitable, religious, educational, or social welfare purposes).
- The beneficiaries are not specific individuals but a class or the public at large.
- Do not fall under the Indian Trusts Act, 1882. They are generally governed by specific state Acts (e.g., Bombay Public Trusts Act, 1950, applicable in Maharashtra and Gujarat) or principles of equity.
- To avail income tax exemptions, public trusts must register with the Income Tax Department under Sections 12A/12AB and 80G.
Private Trust
- Created for the benefit of specific, identifiable individuals or a defined group of individuals (e.g., family members).
- Governed by the Indian Trusts Act, 1882.
- Can be revocable (the settlor can revoke the trust) or irrevocable (cannot be revoked).
- Income of private trusts is taxed as per the income tax slab rates applicable to individuals, or sometimes at a maximum marginal rate, depending on whether the beneficiaries’ share is determinate or indeterminate.
Key Purposes of Forming a Trust
Charitable/Religious Activities
Most common use, to establish and manage institutions like schools, hospitals, temples, mosques, churches, dharamshalas, etc., and to engage in philanthropic activities.
Estate Planning
Private trusts can be used to manage and distribute assets to heirs, especially for complex family structures or to ensure assets are used for specific purposes (e.g., for minors or dependents with special needs).
Asset Protection
To protect assets from creditors or in case of legal disputes (though this varies based on specific laws and intent).
Tax Planning
Public charitable trusts can avail significant income tax exemptions under Sections 12A/12AB and 80G of the Income Tax Act, 1961, making donations to them tax-deductible for donors.
Specific Public Welfare Projects
To execute projects in areas like environmental conservation, rural development, arts and culture, etc.
Key Purposes of Forming a Trust
The registration process for trusts varies depending on whether it’s a Public Trust or a Private Trust, and importantly, on the state where the trust is being registered, especially for Public Trusts. For Public Trusts in Delhi, there isn’t a specific state-level “Public Trusts Act” like in Maharashtra. Delhi trusts generally rely on the Indian Trusts Act, 1882, and specific legal precedents.
General Steps for Trust Registration in Delhi:
Draft a Trust Deed
- This is the foundational step. The Trust Deed must be prepared on a non-judicial stamp paper of appropriate value (as per the Delhi Stamp Act, 1899).
- Key Contents of a Trust Deed:
- Name and address of the Settlor/Author.
- Name and address of the Trustee(s) (minimum one, no maximum).
- Name of the Trust.
- Registered office address of the Trust.
- Object(s) of the Trust (e.g., promotion of education, relief to the poor). For public trusts, objects must be purely charitable or religious.
- Details of the Trust Property (initial corpus/settlement amount).
- Rules and regulations for the management of the trust.
- Powers, duties, and responsibilities of the Trustee(s).
- Procedure for appointment/removal of trustees.
- Provisions for accounts, audit, and dissolution of the trust.
- Irrevocability clause (for public charitable trusts to ensure tax exemptions).
- Application of funds in case of dissolution (for public trusts, typically to another similar charitable organization).
Execution of Trust Deed
The Trust Deed must be signed by the Settlor and all the Trustees in the presence of at least two witnesses.
Registration of Trust Deed
- The Trust Deed must be registered with the Registrar/Sub-Registrar of Assurances of the area where the registered office of the Trust is located.
- Submit the original Trust Deed, along with photocopies, identity proofs of Settlor, Trustees, and witnesses.
- Pay the applicable registration fees and stamp duty.
- The Registrar verifies the documents and, if satisfied, registers the Trust Deed.
Important Note for Public Charitable Trusts in Delhi
While the above covers the core registration under the Indian Trusts Act, there is no specific separate “Public Trust Act” in Delhi. Public charitable trusts in Delhi are primarily formed and registered under the Indian Trusts Act, 1882, and then seek specific registrations with the Income Tax Department to be recognized as charitable entities for tax exemption purposes.
Other Important Registrations and Compliances for Trusts in India
PAN (Permanent Account Number)
- The Trust must apply for a separate PAN card in the name of the Trust. This is mandatory for opening a bank account and for income tax purposes.
- An application for a new PAN can be made using Form 49A (for Indian entities) through NSDL or UTIITSL, selecting “Trust” as the “Category of Applicant.”
Bank Account
- Open a bank account in the name of the Trust after obtaining the PAN and registration certificate.
Income Tax Registrations (for Public Charitable Trusts for Tax Exemption)
- To avail income tax exemptions on its income and to enable donors to claim tax deductions (under Section 80G), a public charitable trust must register with the Income Tax Department.
- Section 12AB Registration: Mandatory for income exemption. Apply online via the Income Tax portal in Form 10A. This is a new provision that replaced Section 12AA from April 1, 2021.
- Section 80G Registration: To enable donors to claim 50% or 100% tax deduction on their donations. Apply online via the Income Tax portal in Form 10AB. This is also a new provision effective April 1, 2021, and requires re-registration every 5 years.
GST Registration
- A trust typically does not require GST registration unless it engages in significant commercial activities that qualify as a supply of goods or services under the GST Act and crosses the specified turnover thresholds (e.g., ₹20/40 lakhs). Pure charitable activities are generally exempt.
TAN (Tax Deduction and Collection Account Number)
- If the Trust is liable to deduct TDS (e.g., on salaries of employees, payments to contractors, rent), it must obtain a TAN.
NITI Aayog Darpan Portal Registration
- Voluntary but highly recommended for NGOs/Trusts working with the government. Registration on this portal can help in accessing government grants and schemes.
FCRA Registration (Foreign Contribution (Regulation) Act, 2010)
- If the Trust intends to receive foreign donations/contributions, it must register under the FCRA with the Ministry of Home Affairs. This is a very stringent and separate registration process.
Compliances for Trusts in India
Annual Audit
Accounts of all trusts (especially those with 12AB/80G registration) must be audited annually if the gross receipts exceed ₹2.5 Lakhs (or as per specific IT Act provisions). The audit report (Form 10B or 10BB) must be filed with the Income Tax Department.
Annual Income Tax Filing
Trusts must file their Income Tax Returns annually (Form ITR-7).
Compliance with IT Act Provisions
Adhering to the stringent conditions for maintaining tax exemption (e.g., application of 85% of income towards charitable/religious purposes, investment of funds as per Section 11(5), maintaining books of accounts).
Maintenance of Records
Proper books of accounts and records must be maintained.
FCRA Compliance
If FCRA registered, strict annual filing of returns (Form FC-4) and adherence to all FCRA regulations are mandatory.
Forming a trust is a powerful way to manage assets for specific purposes, especially for philanthropy or family wealth management. However, due to its specialized nature and the potential for significant tax implications, it is highly advisable to seek our experts legal and tax advice when establishing and managing a Trust.