A trust is an arrangement in which a person (the settlor or author) transfers property to trustees, who hold and manage it for the benefit of specified beneficiaries or a charitable purpose. Public charitable trusts are among the oldest and simplest ways to set up an NGO in India.
Parties Involved
- Settlor / Author – the person who creates the trust and contributes the initial property
- Trustees – the people who manage the trust property and activities according to the trust deed
- Beneficiaries – the individuals or the public who benefit from the trust's activities
Types of Trusts
- Public trusts – created for the benefit of the public at large, such as charitable, educational, medical or religious trusts
- Private trusts – created for the benefit of specific individuals or families, governed by the Indian Trusts Act, 1882
Public charitable trusts are registered under the state's public trust law where one exists (for example in Maharashtra, Gujarat and Rajasthan), and otherwise with the Sub-Registrar under the Registration Act, 1908.
Advantages of Trust Registration
- Legal recognition and the ability to own property and operate bank accounts
- Eligibility for income tax exemption under Section 12AB and donor deduction under Section 80G
- Simple structure with minimal statutory compliance
- Trustees retain long-term control over the organisation's direction
Contents of a Trust Deed
- Name, registered address and objectives of the trust
- Details of the settlor and the initial trust property
- Names of the first trustees, and the process for appointing and removing trustees
- Powers and duties of trustees and the manner of decision-making
- Provisions on management of funds, accounts and audit
- Clauses on amendment of the deed and dissolution, ensuring assets go to a similar charitable purpose
Documents Required
- PAN and Aadhaar of the settlor and trustees
- Photographs of the settlor, trustees and two witnesses
- Proof of the registered office with owner's NOC
- Draft trust deed on non-judicial stamp paper of the value required by state law
Registration Process
- Choose a name and finalise the objectives
- Decide the settlor and trustees
- Draft the trust deed and execute it on stamp paper
- Present the deed before the Sub-Registrar or Charity Commissioner with the settlor, trustees and two witnesses
- Obtain the registered trust deed or registration certificate
- Apply for PAN, open a bank account and register under Sections 12AB and 80G
Frequently Asked Questions
Is a trust a separate legal entity?
A trust is not a separate legal entity in the way a company is. The trustees hold the property and act on behalf of the trust, though trusts are treated as separate taxable entities under the income tax law.
Is it necessary to register a trust under Section 12AB?
It is not mandatory, but without it the trust's income is taxable. Registration under Section 12AB is essential to claim income tax exemption.
Does a trust need to file an income tax return?
Yes. A trust registered under Section 12AB must file its return in the prescribed form, along with the audit report where applicable.