Overview
Trusts formed with noble intentions to provide education, explore in the field of sciences, literature, and other noble causes, serve various purposes such as mitigating scarcity, providing education, & extending medical support. The formal process of trust registration involves officially enrolling a trust under the Trusts Act of 1882. This crucial legal step ensures the trust’s acknowledgment and adherence to legal parameters, providing it with legal validity and establishing its identity as an independent entity.
Trust As Per Section 4 Of Indian Trust Act 1882
1-How to form a Trust?
- A trust can be formed as per Section 4 of Indian Trust Act 1982 for a lawful purpose;
- A trust should have a document written and signed by trustees or a sole trustee;
- A trust can be formed through a will also;
- There is no definite form to create a trust. Objectives of the trustee should be clear and unambiguous;
2-What are the purposes for which a trust can be formed?
Trust cannot be formed for the following purposes under Sec.4 of the Act:
- Unlawful purposes;
- Against provisions of Indian Trusts Act 1932 rules made there under;
- If there are provisions for cheating etc. in the trust;
- If the trust is intended to cause loss or damage to one’s property
3-Who can form a trust?
The following can form a trust under Sec.7 of the Indian Trusts Act 1882:
- A person capable of making contract can form a trust;
- Trust can be formed on behalf of minor with permission of Civil Court.
4-What is the stamp duty to be paid for a trust deed?
- 500/- if only money is contributed by the author of trust or if immovable property is conveyed where in the author remains as the sole trustee.
- Same duty as conveyance if the immovable property is conveyed and the author is not a trustee or a sole trustee.
5-What is the fee for registration of trust deed?
- As per Article III of table of fees under Karnataka Registration Rules 1965, fee shall be paid at 1 percent on the total of value shown by the trustee or value of movable or immovable property shown in the trust deed.
6-Can a trust be cancelled?
A trust can be cancelled on the following grounds as per Sec. 78 of The Indian Trust Act 1882:
- Trust can be cancelled at the will of the trustees;
- Trust can be cancelled if there is provision for cancellation in the deed.
- If author of a trust creates trust for the purpose of repayment of his debt and if this is not informed to the creditor author can cancel the trust.
7-Can the defects in the trust be cured by amendment?
- Yes, amendment can be made a rectification or supplementary deed.
Benefits
Tax Exemption
Charity, trusts can obtain tax exemption and is known as a not for profit organization.
Legal Entity
Separate legal entity, the trust can avail itself of all the benefits offered by the government. The Trust Act and Federal laws mandate the registration of such entities as Charitable Trusts.
Financial Support
Registered trusts provide essential financial support to the public and the impoverished through their charitable endeavors.
Family Wealth Protection
Trusts help manage and preserve family wealth by allocating certain assets, which might be challenging to divide among family members.
Benefits of Immigration and Emigration
Creating a trust can be beneficial when moving, as it helps reduce taxes, protect assets, and provide flexibility in asset organization.
Categories of Trusts in India
Private Trust
Private trusts are established to carry out activities for specific individuals, families, or close associates. These trusts can have beneficiaries closely related to the trust’s founders and are governed by The Trusts Act of 1882.
Legal Entity
Separate legal entity, the trust can avail itself of all the benefits offered by the government. The Trust Act and Federal laws mandate the registration of such entities as Charitable Trusts.
Public Trust
Public trusts are established to benefit the general public. They often focus on charitable, educational, and religious purposes. The governance of public trusts is guided by specific statutes such as the Religious Endowments Act of 1863, the Charitable and Religious Trust Act of 1920, or the Bombay Public Trust Act of 1950. Charitable and religious trusts are prevalent examples of public trusts in India.
Comparison Chart
Criteria | Trust | Society | Section 8 Company |
Legal Framework | Indian Trust Act of 1882 | Societies Registration Act, 1860 | Companies Act, 2013 |
Main Objective | Charitable activities | Public welfare activities | Promotion of science, arts, sports, etc. |
Membership | Trustees | Members | Shareholders |
Governing Body | Board of Trustees | Governing Council | Board of Directors |
Governing Rules | Trust Deed | Memorandum and By-laws | Memorandum and Articles of Association |
Registration Authority | Registrar of Trusts | Registrar of Societies | Registrar of Companies (ROC) |
Tax Exemption | Section 12A and 80G | Section 12A and 80G | Section 8(1) and 12A |
Checklists/Documents required for the formation of Trust
Please note that a Trust is formed under the Indian Trust Act, 1882 and the following documents are essential for the same:
- Address proof of all the parties to the Trust Deed.
- Copy of the rental agreement in case the office of the Trust is a rented/lease property.
- Photos of the persons entering into the Trust.
- Copy of utility bills of the registered office address of the Trust.
Based on these documents, we can go ahead and draft the Trust Deed which will then have to be registered before the jurisdictional Sub-registrar. Please note that before drafting the Trust Deed we need to know the aims and objectives of the Trust
Frequently Asked Questions (FAQs)
Should all trustees be residents of India?
Indeed, all trustees in an Indian trust must be nationals of India. As per the regulations of India, a minimum of one trustee needs to be a resident of India to guarantee appropriate management and adherence to the Trust.
In India, how many trustees are needed to register a trust?
A trust must be registered in India with two trustees at the very least. As per the law, a trust needs at least two trustees to handle the Trust’s assets on behalf of the beneficiaries.
What Is the Duration of Trust Registration?
Trust registration can be completed in a few weeks, though this depends on the completion of the required paperwork and clearances.
To register a trust, what are all the certificates required?
The following are the typical paperwork needed to register a trust in India: Credible Deed, Identity, Attestations of Trustees, Address Proofs, and Images.
What is the Purpose of Trust Registration?
Trust registration serves to legally recognize the trust, ensuring compliance with laws, and providing a framework for its activities.
Can a Trust Have Both Public and Private Objectives?
Yes, a trust can have both public and private objectives, known as a public cum-private trust, where its activities benefit both the public and specific individuals.
What is 12A for trust?
Section 12A of the Income Tax Act in India provides for the registration of trusts and institutions for availing tax exemptions under Section 80G. It’s essential for trusts seeking tax benefits.
How Long Does Trust Registration Take?
The timeframe for trust registration can vary, but the process typically takes a few weeks, subject to the completion of necessary documentation and approvals.
What Are the Tax Benefits of Trust Registration?
Registered trusts can avail themselves of tax benefits under sections 12A and 80G of the Income Tax Act, encouraging donations and support.
Can a Trust Be Dissolved?
Yes, a trust can be dissolved through a process known as winding up, where its properties/assets are distributed to beneficiaries or a similar entity, adhering to legal procedures.