A trust is a legal arrangement where a settlor transfers assets to a trustee to manage for the benefit of a beneficiary. In India, trusts are governed by the Indian Trusts Act of 1882. A trust can be a public trust for charitable, religious, or educational purposes, or a private trust for the benefit of specific individuals or families.

 

Why Register a Trust?

 

Registering a trust is crucial as it provides the organization with a legal identity and credibility. This is essential for:

• Legal Recognition: A registered trust can enter into contracts, own property, and open bank accounts in its own name.

• Access to Funding: It is a prerequisite for receiving government grants, corporate social responsibility (CSR) funds, and foreign contributions (through FCRA registration). Donors are also more confident in contributing to a legally recognized entity.

• Tax Benefits: Public charitable trusts can apply for tax exemptions under Section 12A of the Income Tax Act, 1961, which exempts their income from taxation. Additionally, Section 80G registration allows donors to claim a tax deduction on their contributions.

• Perpetual Succession: The trust's existence is independent of the settlor or trustees, ensuring its long-term continuity and mission fulfillment.

 

Benefits of Trust Registration

 

Registering a trust provides several key benefits that go beyond simple legal recognition:

• Public Credibility: A registered trust is seen as a transparent and accountable entity, which is vital for attracting donors and public support.

• Protection of Assets: The assets held by the trust are legally separate from the personal assets of the trustees and the settlor, protecting them from personal liabilities or legal disputes.

• Streamlined Operations: The trust deed and legal framework provide a clear set of rules for the management and use of assets, preventing internal conflicts and ensuring funds are used for their intended purpose.

 

Documents Required for Registration

 

You will need the following documents for the settlor, trustees, and the trust itself:

• Identity & Address Proof: Self-attested copies of the PAN card and Aadhaar card (or other government-issued ID) for the settlor and all trustees.

• Photographs: Recent passport-sized photographs of the settlor and all trustees.

• Registered Office Proof: A recent utility bill or a lease/rental agreement for the trust's office, along with a No Objection Certificate (NOC) from the property owner.

• Trust Deed: The most critical document. It must be drafted on stamp paper of the appropriate value (which varies by state) and signed by the settlor and all trustees in the presence of at least two witnesses.

 

Step-by-Step Trust Registration Process

 

The registration process is typically done offline at the Sub-Registrar's office with jurisdiction over the trust's registered address.

1. Draft the Trust Deed: The deed must be carefully drafted to include the trust's name, objectives, the names and details of the settlor and trustees, and rules for management.

2. Purchase Stamp Paper: Buy stamp paper of the value required by your state government.

3. Visit Sub-Registrar Office: The settlor, trustees, and witnesses must be physically present at the Sub-Registrar's office for the registration.

4. Submission and Verification: Submit the signed Trust Deed along with all the required identity, address, and office proofs. The registrar verifies all documents.

5. Obtain Registration Certificate: After successful verification, the Sub-Registrar will issue the official Trust Registration Certificate.

Post-registration, the trust must apply for a PAN and TAN and open a dedicated bank account to manage its finances separately. It can then proceed with applications for 12A and 80G registration to avail tax benefits.

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The primary tax benefits are granted through Section 12A and Section 80G of the Income Tax Act.

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1. Tax Exemption on the Trust's Income (Section 12A)

 

This is the most crucial tax benefit for the trust itself. By obtaining a registration under Section 12A, a trust can have its income exempted from tax.

• Exemption from Tax: The income derived from property held under the trust for charitable or religious purposes is not taxable. This includes voluntary contributions and donations received.

• Income Application: To qualify for this exemption, a trust must spend at least 85% of its income on its stated charitable or religious objectives during the financial year.

• Accumulation of Income: If the trust is unable to spend the required 85%, it can accumulate the remaining income (up to the 15% limit) for future use, provided it specifies the purpose and the period for which the income will be accumulated.

• Mandatory Registration: Without Section 12A registration, a trust's income, including donations, would be treated as taxable income, and the trust would be liable to pay tax at the standard rates.

 

2. Tax Deduction for Donors (Section 80G)

 

This benefit is for the donors who contribute to the trust, making it a powerful tool for fundraising.

• Deduction from Taxable Income: A donor (an individual, company, etc.) who makes a donation to a trust that has a Section 80G certificate can claim a deduction from their taxable income.

• Encouraging Philanthropy: This provision incentivizes individuals and corporations to donate to charitable causes, as it effectively reduces their tax liability.

• Types of Deductions: The deduction amount can vary:

  • 100% deduction without any qualifying limit: Donations to certain government-notified funds (e.g., Prime Minister's National Relief Fund).

  • 50% deduction without any qualifying limit: Donations to trusts like the Jawaharlal Nehru Memorial Fund.

  • 100% or 50% deduction subject to a qualifying limit: Donations to other registered trusts, typically capped at 10% of the donor's adjusted total income.

• Prerequisites: To claim this benefit, the donor must receive a valid receipt from the trust, which should include the trust's name, PAN, and its valid 80G registration number.

 

Other Important Points

 

• Audit Requirement: If the gross income of a trust exceeds the basic exemption limit in any financial year, its accounts must be compulsorily audited by a chartered accountant.

• Foreign Contributions: To receive foreign contributions, a trust must also be registered under the Foreign Contribution Regulation Act (FCRA), which is a separate process.

• Compliance: To maintain its tax-exempt status, a trust must adhere to strict compliance requirements, including regular filing of income tax returns and proper maintenance of accounts and records.