Overview of Trust registration
Trust registration is a process of legalizing the trust deed (a legal contract between the settlor and Trustee) from the registrar of the respective jurisdiction. The Trust serves as a legal medium liable for the lawful distribution of the settlor’s assets among the concerned beneficiaries. The Trust comes to an effect as soon as the registrar provides its authorization to the trust deed.
What is Trust in an Indian Context?
The Indian Trust Act 1882 governs all registered Trusts in India and facilitates the legal provisions for the same. The Trust is usually referred to as a legal arrangement where the Trust’s owner transfers the property to the concerned Trustee (aka beneficiary). The object of the Trust is to ensure the seamless transfer of the Trustor’s assets among the beneficiaries as per the clauses cited in the Trust deed.
A trustee, selected by the grantor, is liable for administering the Trust & finally distributing his/her assets to the designated beneficiaries selected by the grantor when the Trust is set up. Heir, family members, or charity are some common beneficiaries of the Trust in India.
Trusts can be utilized to reduce taxes, simplify or avert the probate process & safeguard assets.
There are various types of Trust in India, such as;- Revocable;
- Testamentary
- Irrevocable
- Charitable
- Asset protection
- Spendthrift
- Special needs
What are the Benefits of Trust Registration?
To Involve In Charitable UndertakingsA Charitable Trust is primarily a way to set up your assets to benefit you, concerned beneficiaries, & a charity simultaneously. Such Trust could render various advantages for a person seeking to aid society with nonessential assets, such as stocks or real estate.
Accessibility to Tax ExemptionsAll registered trusts in India have access to several tax exemptions offered by the Income-tax department. Since the object of the Trust doesn’t revolve around profit generation, like NGOs, they are eligible to avail various tax relaxations. However, such a benefit is only available to trust that have a registered deed at their disposal.
Trusts are very useful in ensuring taxation relaxation on capital and income. The Trust may facilitate better coverage for the settlor, the beneficiaries & the trust assets from stringent tax provisions.
Provide Benefits to Financially Aggrieved IndividualThe registered Trust facilitates the much-needed financial aid to the poor people and the masses via charitable activities.
Encounter Minimal Legal HindrancesThe Indian Trusts Act, 1882, ensures comprehensive legal protection for the Trust. It also prevents any third party to make an unnecessary claim that could endanger the legal standing of Trust.
Ensures Legal Coverage for the Family WealthTrust can be used to allocate specific assets such as land/an interest in the entity formed by the family, which otherwise would not be practical for a trustor to split between individuals.
Avert Probate CourtAnybody can leverage trust registration as a tool for transferring an asset to the heir in the absence of a Will. As the legal title of the assets transfers from the settlor to the Trustee in case when they are "settled", there is no change of ownership after settlor demise, thus evading the requirement for probate of a will on account of trust assets.
Unlike probate, the trust acts as a private agreement that skip the requirement for additional registration. The use of a trust can also avert the economic adversity often encountered by surviving spouse even as waiting for grant of probate.
Immigration/Emigration of FamilyWhen an individual & her/his family move to another nation, it is a perfect event to establish a trust to get rid of taxation in the destination country, thereby safeguarding the family assets and facilitating flexibility in its organization.
What are the Types of Trusts?
There are three types of trusts in India:- Public Trust
- Private Trust
- Public Cum-Private Trust
While private trusts function as per the provisions of the Indian trusts Act, 1882, public trusts are categorized into religious & charitable trusts. The Religious Endowments Act, 1863, Charitable and Religious Trust Act, 1920, the Bombay Public Trust Act, 1950 are some of the prominent statutes for the enforcement of public trusts in India.
Private TrustPrivate Trust refers to a legal arrangement created for the benefit of individuals other than a public or charitable purpose. It is formed for the financial benefit of one or more beneficiaries who are known to the Trustor. Private Trust doesn’t serve a charitable purpose, and its benefits are only accessible to designated beneficiaries. Such trusts are bound to follow the provisions of the Indian Trusts Act, 1882
Public TrustA Public Trust essentially benefits the public at large. Unlike private trusts, public trusts do not function under the Indian Trusts Act and are formed to serve a charitable or religious purpose. Such Trust follows the general law, which is in effect for the time being. Just like the private Trust, these trusts may be formed inter vivos by will.
Public-Cum-Private TrustsAs the name suggests, the Public-Cum-Private Trusts serve a dual purpose. They are eligible to use their income for the public as well as private purposes. That implies that beneficiaries of such Trust could be either public or private persons or both.
Fundamental Documentation Required for Trust Registration
Following are key documents that one needs to arrange for trust registration:- Proof related to Identity for Trustor & Trustee such as Aadhaar Card, Voter ID, Passport, DL
- Address Proof related to Registered Office such as Copy of Certificate of Property/Utility Bills
- No objection certification from the Landlord if the property is rented .
- Trust deed's objective
- Detail about the Trustee and settlor such as Self-attested copy Id & Address Proof and occupation
- Trust Deed on Proper Stamp Value
- Trustee and settlor Photos
- Trustee and settlor
- PAN details
- Trust deed must reflect the following information:
- Number of trustees
- Trust registered address
- Proposed name of trust
- Proposed Rules that will govern the trust
- Presence of settlor as well as two witnesses at the time of registration of Trust
Step-by-Step Procedure for Registering a Trust in India
The detailed Procedure for trust registration entails the given steps:Step 1: Select an Apt Name for the Trust
The first and foremost step in the process of Trust registration is the name selection for the proposed Trust. Be mindful while serving such a purpose and take the following points into account to avoid any hassles:
- The name should fit the provisions of the Emblems and Names Act, 1950
- There should be no violation whatsoever when it comes to Trademark Act.
- The name should stay to the originality.
Drafting of Trust Deed is an important undertaking because it is the only thing that makes the Trust legally enforceable.
In general, the trust deed consolidates the below-mentioned clauses:
ObjectsThe Object clause reflects the object behind the formation of the Trust
Acceptance of FundsThis clause enables the Trust to accept contributions, donations & subscriptions from any person, government body, or charitable avenue, in the form of cash, immovable assets without any charge on it. Furthermore, the clause states that any contributions that hamper the Trust’s object are non-acceptable in nature.
Investments: the investment clause sets out the conditions for the lawful and effective administration of the Trust’s fund. Further, this clause also framed conditions for effective allocation of the additional funds that are not in use and could help in generating extra income via investment.
Power of the TrusteesAs the name suggests, this specific clause talks about the responsibilities of the trustees.
Generally, such clauses confer the following powers to the trustees.- Appointing employee(s)
- Alienating the trust properties
- Opening the bank account in the Trust’s name
- Suing defaulters in case of legal dispute on behalf of the Trust
- Accepting any gift, donation via legitimate individuals or sources
- Investing additional funding in securities
This clause mandates the trustees to administer the book of account on a regular basis. Further, it also sets out the requirement for account auditing that should be conducted by the certified CA.
Winding UpA trust is wound up when all of the Trust properties/assets are lawfully distributed to the beneficiaries or to a similar entity, either directly or via resettlement. The involved parties must identify any tax obligations incurred owing to the transfer of assets when the Trust is wound up. Furthermore, this clause renders the requirement of conducting such legal undertaking with the approval of charity commissioner/Court/any other law to mitigate any chances of legal dispute.
Penalties for violating Compliances of Trust Registration
Civil and Criminal PenaltiesThe violation of provisions of the Trust deed incurs both civil and criminal penalties for the defaulters. Sections 405 to Section 409 of the IPC 1860 set out the provisions related to the criminal breach of Trust.
Application for Tax Deduction Account NumberThe Trust or Institution ought to make the official request before the Assessing Officer for the allotment of tax deduction account number soon after being registered. For this purpose, Trust can use the form-49B facilitated by the IT department. The Tax Deduction Account Number should be quoted on all the challans for payment of sum u/s 200 and TDS certificate, as well as returns, delivered u/s 206, 206A and 206B.
Section 272BB talks about the penalty to be levied on the Trust failing to avail the Tax Deduction Account Number. The said section slaps the penalty of Rs 10000 in aforesaid events.
Failure to Furnish the Return of IncomeFailure to facilitate the return of income attracts significant penalties under the Act. The return of income shall not stand invalid if the TDS certificate has not been provided along with the return of income owing to the default of the taxpayer is not rendering such certificate. The taxpayers are mandated to produce this certificate within two years from the end of the assessment year.
What is the Role of Section 12AB on the Registered Trusts?
Ensuring continual exemption u/s 10 or 100 all the active existing charitable Trust or institutions are mandatorily required to secure the new registration u/s Section 12AB which are registered under the given sections;
- Section 12A
- Section 12AA
- Section 10(23C)
- Section 80G
Additionally, the trust registered u/s 10 (23C) or section 12AA shall renew their registration u/s 12AB. Section 12AA, which stipulates the process of registration for the trusts or institutions, would no longer remain in force & new section 12AB will become functional with effect from the given timeframe, whichever is earlier.
The grant date of registration u/s12AB or
The last date by which application for registration & permission is required to be made.
Why approach Arvisa for obtaining Trust registration?
Our Arvisa experts will be at your service for facilitating required support concerning Trust Registration and its compliance. The trust registration in India revolves around sensitive and error-prone legal implications. This is where our expertise comes in so handy. Our professionals make sure that you have more clarity on the governing provisions of Trust in India so that you can undertake Trust related activities with minimal legal hassles.
How Can Arvisa Help?
Governing compliances and registration legalities could run any client into the trouble of application rejection and re-filing, which indeed is a time-consuming and cumbersome task. However, all such nuisances can be overcome if you opt to proceed via Arvisa way.
Step 1: Screening of client’s requirement regarding trust setup in India
Step 2: Name Selection for the Trust in view of prevailing bylaws
Step 3: Identification of applicable provisions and legalities
Step 4: Insertion of Relevant clauses in the Trust Deed depending on the nature of Trust
Step 5: Availing necessary authorization from Sub-Registrar
Frequently Asked Question
Trust registration is still not considered a legal compulsion for a private trust that has a Will. In the case of a Public trust, whether in relation to moveable or immovable property & whether created under a will or inter vivos, trust registration is optional.
A trust can be created via a trust deed. Presently, two types of Trust exist in India, mainly public trust and public trust.
A trust may be formed by any person who is competent to contracts: This includes a person, HUF, AOP, establishment, so on and so forth. If a trust is formed on or behalf of an under-aged person, then the consent of a principal civil court of original is required.
Trusts are set up to facilitate legal coverage to the trustor’s assets, ensure that such assets are lawfully distributed among the designated beneficiaries, and avoid or minimize inheritance or estate taxes.
Common documents required for Trust registration given below:
- Trust Deed
- Identification proof such as Passport, DL, Voter ID, Aadhaar Card, etc.
- Passport size photos of all the involved parties
- Aadhaar Card for each party of the Trust.
A trustee, is authorized to sell land via public domain. He cannot sell the land by private contract.
To obtain registration u/s 12A, the application in form 10A for registration of a charitable or religious trust can be made on the IT department portal.
Unlike trusts, a society excels on improved democratic set-up with membership & an elected body to administer the Society. The serving members of the Society can remain in control as long as they as elected to the managing committee. Also, they have the right to leave out Society whenever they want. Such rights are not available to trustees.
In Maharashtra & Gujarat, all societies must secure trust registered under the Bombay Public Trusts Act, 1950. A society may lead to winding up if 3/5th of the members have the intention to do so. A society is a more democratic and flexible set-up.
To some extent, NGOs serve as an ancillary unit for a government that fulfil its philanthropic tasks. Trusts, on the contrary, are not dependent on the government’s programs. Trusts excel on separate policies since they can be private or public trusts.
All the forms of trust, NGOs, or Society are regarded as NGO. The only difference that separates these entities from each other is the registration and management processes.
It is a legal compulsion for all registered trusts to e-file IT return. If the Trust seeks to audit its account, then the IT return must be filed along with the Digital Signature of the certified CA who is accountable for carrying out the audit.
