A trust is an arrangement in which the owner of a property (the settlor) transfers it to a trustee so that it can be used for the benefit of a third party or beneficiaries. The trustee holds and manages the property in accordance with the instructions given by the settlor for the advantage of the beneficiaries.
In India, trusts are governed by The Indian Trusts Act, 1882, which lays down the rules and regulations regarding their creation, management, and administration. As per the Act, all trusts are required to be registered to ensure legal recognition.
Today, trust registration has become a fully online process, which is generally completed through the execution of a Trust Deed—the most critical document required for registration. Registering a trust in India is highly recommended, as it provides legal validity and allows the trust to enjoy various benefits under the law.
The process of registering a trust involves three primary parties:
Settlor/Trustor – The person who creates the trust and transfers the property.
Trustee – The individual or entity entrusted with managing and holding the property on behalf of the beneficiaries.
Beneficiary – The person or group for whose benefit the trust has been established.
Registering a trust offers several important advantages:
Participation in Charitable Activities – Enables the trust to legally engage in charitable or philanthropic work.
Tax Benefits – A registered trust can avail exemptions and deductions under applicable tax laws.
Support for the Underprivileged – Provides structured assistance and welfare to needy individuals or groups.
Legal Compliance – Ensures that the trust operates within the framework of the law.
Protection of Family Wealth – Helps in preserving assets for future generations.
Avoidance of Court Disputes – Minimizes legal conflicts related to property and inheritance.
Facilitates Immigration/Emigration – Assists in legal matters when family members move abroad.
Prevents Forced Heirship Issues – Allows flexible allocation of assets, avoiding statutory inheritance complications.
Tax Planning – Helps in efficient tax management and mitigation.
Asset Management – Provides a structured mechanism for managing and distributing trust assets effectively.
In India, trusts are broadly categorized into three types:
1. Private Trust:
A private trust is established for the benefit of one or more specific individuals who are clearly identified or can be identified in the future. Essentially, private trusts serve individual beneficiaries rather than the public. These trusts are governed by the Indian Trusts Act, 1882 and can be created during the lifetime of the settlor (inter vivos) or through a will.
2. Public Trust:
A public trust is set up entirely for the benefit of the general public. Key points about public trusts include:
They are mainly classified as charitable or religious trusts and are governed by specific laws rather than the Indian Trusts Act, which applies to private trusts.
Public trusts can also be created inter vivos or by will.
Some important legislations governing public trusts include the Charitable and Religious Trust Act, 1920, Religious Endowments Act, 1863, Charitable Endowments Act, 1890, and the Bombay Public Trust Act, 1950.
3. Public-Cum-Private Trust:
This type of trust is designed to serve both public and private purposes, where a portion of the income may benefit specific individuals while the remainder is used for public welfare.
Nowadays, trusts are also utilized for investment purposes, including mutual funds and venture capital funds, which are regulated by the Securities and Exchange Board of India (SEBI). Trusts can be classified according to the purpose or motive behind their creation as follows:
1. Private Trust:
A trust formed primarily for the benefit of one or more specific individuals designated as beneficiaries by the settlor.
2. Public Trust:
A trust created for the welfare of the general public or a particular class, often with charitable objectives as the main beneficiary.
3. Simple Trust:
In this type, the trustee serves as a passive custodian of the trust property, with no active duties or specific instructions to perform.
4. Special Trust:
Here, the trustee takes an active role in managing the trust and acts to fulfill the intentions of the grantor. This type is operational and enforceable.
5. Express Trust:
A trust explicitly created by the settlor over their assets, either during their lifetime or through a will, typically documented via a trust deed.
6. Implied Trust:
A trust that is presumed to exist based on the intention of the parties, even if certain legal formalities required for an express trust are not fulfilled.
7. Other Trusts:
Trusts may also be categorized further depending on the specific objectives or purposes they are intended to serve.
To register a trust in Jaipur, the following documents are generally needed:
A trust deed generally contains the following key details:
Number of Trustees: Total count of individuals appointed as trustees.
Registered Address: Official address of the trust.
Name of the Trust: Proposed name under which the trust will operate.
Rules and Regulations: Guidelines and legal provisions that the trust must adhere to.
Signatories: Presence of the settlor and at least two witnesses during the trust registration process.
The process for trust registration in India can be summarized in the following steps:
1. Selecting a Suitable Name
The first step is to choose a name for the trust. The selected name must not fall under the restricted or prohibited names as per the Emblems and Names Act, 1950.
2. Decide on Settlers and Trustees
There is no strict rule on the number of settlers, though most trusts have a single settler. A minimum of two trustees is required, and there is no upper limit on their number. Typically, the settler cannot act as a trustee. Additionally, the settler must be an Indian resident.
3. Drafting the Memorandum of Association (MOA) and Trust Deed
The Trust Deed serves as legal proof of the trust’s existence and outlines its rules, including the process for adding, removing, or replacing trustees. The MOA defines the relationship between the trust and its trustees and highlights the main objectives of the trust. It should list the names, addresses, occupations, and signatures of all members.
4. Preparing the Trust Deed on Stamp Paper
The trust deed must be executed on stamp paper, the value of which depends on the state and the total property value of the trust. An additional fee of ₹1,100 is payable—₹100 as the trust registration fee and ₹1,000 for keeping a certified copy with the Sub-Registrar. After submission, the applicant can collect a certified copy of the trust deed, usually within one week.
5. Submission of Trust Deed to the Registrar
The applicant submits the original trust deed along with attested photocopies of required documents to the local registrar. The settler must sign each page of the photocopy, and all settlers along with two witnesses must be physically present with their identity proofs (original and self-attested copies). The presence of trustees during registration is generally optional.
6. Receiving the Certificate of Registration
Once the registrar receives the documents, the photocopy of the trust deed is retained, and the original registered deed is returned. After completing all formalities, the Certificate of Registration is issued, typically within seven working days.
This streamlined process ensures that the trust is legally recognized and compliant with Indian law.
In India, failing to comply with trust registration requirements can attract various penalties. The main types of penalties include:
1. Civil and Criminal Penalties
If there is a breach of trust, both civil and criminal actions can be initiated under Sections 405 to 409 of the Indian Penal Code, 1860. These provisions allow for legal consequences against trustees or beneficiaries involved in violations.
2. Penalty for Non-Application for Tax Deduction Account Number (TAN)
Once a trust or institution is registered, it must apply for a Tax Deduction Account Number (TAN) using Form 49B as per Income Tax rules. This TAN must be quoted on all TDS payments, certificates, and returns under Sections 200, 206, 206A, and 206B. Failure to comply can lead to a penalty of ₹10,000 under Section 272BB.
3. Penalty for Non-Filing of Income Tax Return
If a trust or institution does not file its Income Tax Return (ITR), it is liable for penalties under the Income Tax Act. However, if the TDS certificate was not provided by the payer due to their default, the ITR will not be considered defective, provided the certificate is submitted within two years from the end of the relevant assessment year.
These measures ensure that trusts operate transparently and adhere to both legal and tax obligations.
For a charitable trust or institution to continue availing tax exemptions under Sections 10 or 11 of the Income Tax Act, it is now mandatory to obtain fresh registration under Section 12AB. This requirement applies to all existing trusts or institutions that were earlier registered under:
Section 12A
Section 12AA
Section 10(23C)
Section 80G
Essentially, Section 12AB ensures that all charitable entities comply with the updated regulatory framework to maintain their tax-exempt status.
Yes, a trust is required to file its Income Tax Return (ITR) electronically. This can be done:
With a Digital Signature or
Without a Digital Signature, by using the Electronic Verification Code (EVC).
However, if the trust falls under Section 44AB and is required to have its accounts audited, filing the ITR electronically becomes mandatory.
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