Everything you need to know about registering a trust in India.
What is a Trust in India?
A trust in India is a legal arrangement where the owner of an asset (the settlor) transfers the ownership to another party (the trustee), who manages it for the benefit of a third party or group (the beneficiaries). Trusts can be created for charitable, religious, or private purposes, and they are governed by the Indian Trusts Act, 1882, for private trusts, while public trusts follow specific state laws.
Types of Trusts in India
Public Trust
Created for charitable or religious purposes and benefits the general public or a specific group.
Private Trust
Formed for the benefit of specific individuals or families, such as inheritance management.
Income Tax Benefits of a Trust
Trusts in India, especially charitable and religious trusts, enjoy significant tax benefits under the Income Tax Act, 1961:
Section 12A: Allows registration of trusts for availing tax exemptions on income.
Section 80G: Donations made to registered charitable trusts are eligible for tax deductions.
Exemption for Religious Trusts: Income derived from property held for religious purposes is exempt under Section 11.
These tax benefits incentivize the formation of trusts for societal benefit and philanthropy.
Process for Trust Registration in India
The process of registering a trust in India involves several legal and procedural steps to ensure compliance with applicable laws. Below is a detailed step-by-step guide:
Choose an Appropriate Name for the Trust:
The name of the trust should not violate any existing trademark or resemble a government entity. Ensure that the name aligns with the purpose of the trust.
Draft the Trust Deed:
Prepare a trust deed, which is the primary legal document defining the purpose, objectives, and structure of the trust. It should include:
Name and address of the settlor, trustees, and beneficiaries.
Objectives of the trust.
Details of the trust property or assets.
Rules and regulations for managing the trust.
Choose Trustees:
Select individuals or entities who will act as trustees to manage the trust's activities and assets. Trustees must act in good faith and in the interest of the beneficiaries.
Determine the Trust Property:
Specify the initial assets or property that will be transferred to the trust by the settlor. This could include cash, property, or other tangible/intangible assets.
Notarize the Trust Deed:
Sign the trust deed in the presence of two witnesses and get it notarized to validate its authenticity.
Register the Trust:
Submit the trust deed to the local Registrar office along with the required documents. Pay the applicable registration fee and obtain the official registration certificate.
Checklist of Documents Required for Trust Registration
Ensure you have the following documents and information ready for a smooth registration process:
Trust Deed, duly signed and notarized.
Identity proofs of the settlor, trustees, and witnesses (Aadhar Card, PAN Card, Passport, etc.).
Address proofs of the settlor and trustees (Utility Bill, Bank Statement, etc.).
Details of the trust property or assets.
Passport-sized photographs of the trustees.
Self-declaration affidavits from the trustees stating their willingness to act as trustees.
Non-objection Certificate (NOC) from the property owner if the trust operates on rented premises.
Once the registration process is complete, the trust is legally recognized, and you can proceed with applying for tax benefits, such as obtaining a Section 12A and 80G certificate for charitable trusts.
Application of Trust: Step-by-Step Guide
After registering a trust, additional steps are required to ensure compliance and avail of income tax benefits under specific sections of the Income Tax Act. Below are the procedures for applying under Sections 12A and 80G:
1. Application for Section 12A (Tax Exemption for Trusts)
Section 12A provides tax exemptions to trusts and NGOs by recognizing them as charitable organizations. Follow these steps to apply under Section 12A:
Prepare Required Documents:
Gather essential documents, including:
Trust registration certificate.
Trust deed.
Details of trustees, including identity and address proofs.
Financial statements of the trust for the last three years (if applicable).
Submit Form 10A:
File Form 10A electronically through the Income Tax Department portal.
Verification by the Commissioner:
The Income Tax Commissioner reviews the application and may request additional information or documents.
Obtain 12A Certificate:
Once approved, the trust receives a 12A certificate, making it eligible for tax exemptions on income.
2. Application for Section 80G (Tax Deduction for Donations)
Section 80G allows donors to claim tax deductions for contributions made to registered trusts. Trusts must obtain 80G certification to attract donations. Here’s how to apply:
Ensure Eligibility:
The trust must primarily engage in charitable activities and not restrict benefits to any particular caste, religion, or community.
Prepare Supporting Documents:
Prepare the following documents for submission:
Trust deed and registration certificate.
12A registration certificate.
Financial statements, including income and expenditure reports for the last three years.
Details of donors (if any).
File Form 10G:
Submit Form 10G through the Income Tax Department portal along with the required documents.
Inspection and Approval:
The Income Tax Commissioner inspects the documents and may conduct inquiries to verify the trust’s activities. Upon approval, the 80G certificate is issued.
3. Application for FCRA Registration (For Foreign Donations)
If the trust plans to receive foreign contributions, it must obtain registration under the Foreign Contribution Regulation Act (FCRA). The process involves:
Eligibility:
The trust must be at least three years old and have a track record of spending funds on charitable activities.
Prepare Documents:
Include the following:
Trust registration certificate and deed.
Financial statements for the last three years.
Details of foreign donors (if any).
Submit Application:
File the application on the FCRA online portal with the requisite fees.
Verification and Approval:
The Ministry of Home Affairs reviews the application, conducts an inspection, and issues an FCRA registration certificate.
Frequently Asked Questions (FAQs)
Yes, trusts can apply for both 12A and 80G certificates simultaneously. The applications are separate, but they can be submitted together through the Income Tax Department's portal. Ensure that all required documents for both certificates are provided.
No, a trust must be at least three years old to apply for FCRA registration. Additionally, it should have a consistent track record of charitable activities and financial audits for the last three years.
Yes, under the updated regulations introduced in 2020, trusts must renew their 12A and 80G registrations periodically. The renewal process involves filing an application on the Income Tax portal and providing updated documents.
If a trust is not registered, it may not be recognized as a charitable organization under the law, and its income will be taxable. Furthermore, donors cannot claim tax deductions for contributions made to an unregistered trust.
While a registered office address is required during registration, a trust can later change its office location by updating the Registrar of Trusts. A No Objection Certificate (NOC) is required if the office is on rented premises.
Yes, all trusts must maintain audited financial statements annually. This is especially important for compliance with 12A, 80G, and FCRA requirements. Regular audits help establish credibility and transparency.
Yes, a trust can be created for family or private purposes. These are known as private trusts and are governed by the Indian Trusts Act, 1882. They do not qualify for 12A or 80G benefits as they are not for public or charitable purposes.
While a trust's primary purpose must be charitable, it can engage in commercial activities if the income generated is used solely for achieving its objectives. However, this should be explicitly mentioned in the trust deed.
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