Trust Registration and Benefits

A Trust is a relationship in which a person or entity holds a valid legal property which is known as the Trust Property. The Trust is bound by a fiduciary duty to exercise the legal right for the benefit of any one or more individuals or group of individuals or organizations, who are known as the Beneficiaries.

Meaning of Trust

According to Sec 3 of the Indian Trust Act a Trust is defined as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner”. In simple words, it is a transfer of property by one person (the settlor) to another (the trustee) who manages that property for the benefit of someone else (the beneficiary). 

Purpose of Trust

A trust can be created for any lawful purpose which satisfies the following points:

1. Not forbidden by law
2. Does not defeat the provisions of law
3. Not fraudulent 
4. Does not involve injury to any person or property
5. The court does not regard it as immoral or opposed to public policy

Who can create a Trust

A Trust can be created by the following persons:

• Company
• Every person competent to contract
• By or on behalf of minor with the permission of principal civil court of original jurisdiction 
• Hindu Undivided family (HUF)
• Association of Person (AOP)
• Trust by a woman

Types of Trust

Public Trust:

In this type of trust the beneficiaries are not identified and the benefit is given to the public at large. Examples – Paragon charitable Trust, Sir Dorabji Tata Trust etc. It must be formed for charitable or religious purposes.

• Charitable and religious purpose means
• Relief to poor
• Education Promotion
• Yoga Promotion
• Health Promotion
• Preservation & Conservation of wildlife / forest
• Preservation & Conservation of monuments
• General Public Utility

Private Trust:

In this type of trust the beneficiaries are identified in the trust deed and benefit is provided to the person mentioned in the deed. 

Business Trust:

In most recent times trusts are used as an investment vehicle in the form of Real Estate Investment Trust and Infrastructure Investment Trust.

Securitization Trust:

The trust is set up by a Securitization company or reconstruction company formed for the purpose of reconstruction of financial assets.

In this article we will majorly cover Public Trust and Private Trust.

Difference between Public Trust and Private Trust:

1. Trust can be easily identified by the identification of beneficiaries, where the beneficiaries are public at large such trust is a public trust but where the beneficiaries are defined and identified it is private trust.
2. In public trust the interest of the trust property is vested in an uncertain and fluctuating body of individuals or entities whereas in private trust the interest in property is vested to specific people.
3. Public trust has a larger and wider domain whereas private trust has a limited and narrower domain.

Process to Form a Trust

Important points before registering a trust:

1. Person creating trust must be of 18 years or above and mentally capable to enter into a contract.
2. Name of the trust
3. Address of the trust
4. Objects of the trust
5. Atleast one settler of the trust
6. Atleast two trustees of the trust
7. Property of the trust-moveable or immoveable property

Creation of a Trust Deed

A trust deed may be created in any language but preferably in English. The deed may not contain any technical words but it shall contain words which are primarily inclined to its objects and such words will constitute a trust only when the requirements of trust are fulfilled.

Contents of the Trust Deed

1. The name of author/settlor of the trust
2. Name of trustee
3. The name of beneficiary whether it is private or public at large
4. Name of the trust
5. Place where principal or other offices shall be situated
6. The property creating obligation under the trust for the benefit of the beneficiaries 
7. An intention to divest the trust property upon the trustees
8. The object and purpose of the trust
9.  Procedure for appointment, removal or replacement of trustees, their rights, duties and powers etc.
10. The rights and duties of the beneficiaries 
11. Mode and method of determination of trust
12. Deed must contain signature of author, trustees and witnesses at the appropriate places
13. The author must sign at all pages of the trust

Documents required for Registration of Trust

The below listed documents are mandatory for creation of trust:

1. Trust deed (original and one photocopy)
2. Self-attested copy of proof of address of settlor (Aadhaar card, passport, voter ID, driving license or any alike document)
3. Self-attested copy of proof of address of trustee (Aadhaar card, passport, voter ID, driving license or any alike document)
4. Proof of registered office address of trust
5. Non objection letter signed by the landlord of the registered office premise
6. Registration fee

At the time of registration, the settlor and witnesses must be personally present with their identity proof in original.

Benefits of Registering a Trust

Following are advantages for registering a trust:

• A trust registered in charitable and religious purpose can avail tax benefits under section 11 of Income Tax Act
• A trust benefits to the society at large by providing services to the needy
• It can also avail benefit under GST Act
• It is difficult to dissolve a trust than any other entity
• The family trust can get protected against relationship property claims

Income Tax Benefits to Private Trust

The taxability of a trust depends upon its nature whether it is a private trust or public trust. In case of private trust, the all income is taxable in hands of beneficiaries and if the beneficiaries are minor the income is clubbed with that of the parent with the higher income.’

Therefore, any profits and gains from business or profession form a private trust will be taxed as per usual rate no benefits of Sec 11 of Income Tax Act 1961 is given to a private trust.

Income tax Benefits to Public Trust

A trust can avail various incentives of Income Tax only if it is registered under Sec 12AB of the Act as a trust or society or Sec 8 company under Companies Act, 2013.

Trust Registration Process

Step 1: Get the trust registered with the office of registrar of societies with the respective states

Step2: Once the trust is registered but not operative yet then apply to income tax for registration of trust under Sec 12AB and 80G of the Income Tax Act for provisional registration of trust

Step 3: Get the provisional registration of trust under Income Tax by online application on the portal which is valid only for 3 years form the date of registration

Step 3: Start the object of the trust and make application immediately on initiation of objects for final registration under Income Tax Act

Step 4: The final registration shall be accompanied by the accounts of the trust

Step 5: Final registration shall be valid for a period of 5 years from the date of registration and the trust shall seek renewal after every 5 years consecutively

Following conditions must be satisfied for claiming deduction under section 11 of Income Act 1961:

• • Trust (there must be a trust by transfer of property)
  • Trust must be for charitable purpose 
  • It must be registered under section 12AB of Income Tax Act 1961
  • The account of the trust must be maintained
  • The accounts must be audited if income of the trust exceeds Rs. 2,50,000/- per year
  • The Income Tax Return must be timely filed
  • The property of the trust must be kept in specified investment

FAQ’s

• Can a public trust do business (as per Income Tax Act)?

Yes, a public trust can do business subject to the following conditions:

1. Two separate accounts must be maintained one I.e. business accounts and other Charitable accounts
2. Revenue from business income must not exceed 20% of the total revenue.

• Can an author and trustee be the same ?

No, the author/settlor of the trust shall be two different person. Author of the trust cannot bestow his property to himself for the benefit of another.

• Can a trust give gifts to its donor?

Yes, a trust can give gifts to its donor in exchange of donation provided the gift is accounted for properly in the books of accounts of the trust.

• Is it mandatory for a trust to get its accounts audited?

As per Income Tax Act if the trust is registered under section 12AB and income of the trust exceeds Rs. 2,50,000 in any previous year the trust must get its accounts audited by a qualified chartered accountant in practice otherwise it is not mandatory for trust to get its account audited.

• How is anonymous donation taxable in a public trust?

Anonymous donation is treated under Sec 115BBC in the following manner:

1. A religious trust can accept anonymous donation and it shall not be taxed separately
2. Anonymous donation shall be taxable @30% after providing deduction being higher of two: 5% of the total deduction or Rs. 1,00,000

• What happens if donation accepted by a trust is not applied for its objects ?

In case trust could not apply the donation received for its objects, it can make an application to the income tax officer for deferment of application and such deferment shall be given only to succeeding year.  Therefore, in the year of deferment application the trust is not liable for any tax.

Example: A trust has received Rs. 100 lakh as donation but it could not apply for its objects and the donation is left idle in the bank account of trust. So, the trust can make an application for deferment and claim 100% deduction under income tax as a result it will not be liable to pay any tax.

• Can a public trust be created for the benefit of employees of the organisation?

No, a trust created by an organisation for the benefit of its employees no matter how numerous the employee, such trust shall not be treated as public trust.

SeedUp Advantage

Initiate your trust registration along with Section 12AB and 80G application with SeedUp.

1. Free Consultation: Our experts will provide you a 15 mins free consultation on the regulatory aspects and case to case basis consultation depending upon the business conditions of the enterprise.
2. Price: We provide the best price in this perfect competitive market across India along with enriching client experience.
3. Documents Collection: A complete list of documents required to complete the task shall be provided by us at once to eliminate the hassle for documents.
4. Documents Preparation: The drafting of deed to be made to Registrar department shall be made by us
5. End to End Support: We provide end to end support to our client’s right form start of the project till the completion of the task.
6. To know more please click here to consult our experts 

Our Procedure for trust and Sec 12AB and 80G or revocation process.

1. Fill the form to get in touch with us and get to know more about the expert consultation
2. Documents collection: Our team will get in touch and help you regarding the whole documentation process.
3. Guidance: Proper guidance and support will be given from us through the entire revocation or cancellation application along with authenticated ticket number
4. Application Tracking: Once the application has been made regular updates will be given regarding the whole process till the revocation order is given.