Trust Registration in India

A trust is like a promise formalized by law, where one person, known as the settlor, transfers assets to an individual or a group, known as the trustees, to manage them for a charitable or beneficial purpose. In India, trusts are powerful tools for serving society and are commonly established for religious, medical, educational, or charitable purposes. From running schools to feeding the poor, trusts help transform goodwill into meaningful action. In this article, you'll learn all about what a trust is, its key objectives, and the step-by-step process to register one.

What is a Trust?

A trust is a legal way to let someone manage your property, money, or assets for the benefit of others. It is very useful for running charitable, educational, or religious organizations. Trusts are created to ensure that the resources are used in a planned and meaningful way. They help ensure that the assets are used properly for good cause. They are governed by the Indian Trusts Act, 1882 for private trusts, while public charitable and religious trusts are governed by state specific laws.  

Parties Involved in the Trust Registration Process

When registering a trust in India, there are a few people involved, and each plays an important role in making the trust function smoothly. They are as follows:

• Settlor: The person who creates the trust and donates assets, money, or property is a settlor. The settlor sets the purpose and the rules of the trust.
• Trustee: They are the people or organizations that are responsible for managing the trust and ensuring all the assets are used properly as per the trust deed. A trust needs to have at least one trustee.
• Beneficiary: These are the people or causes that will benefit from the trust. In charitable trusts, this could be the public or a group in need.

Types of Trust in India

The following details include the types of trusts in India:

• Public Trust

The public benefits from the establishment of a public trust. These are usually set up for charitable, religious, or educational purposes like running schools, hospitals, old-age homes, or temples. Anyone from the public can benefit from such a trust, and these are often registered under state-specific laws like the Bombay Public Trusts Act for Maharashtra.

• Private Trust

A private trust is created to benefit specific individuals or families. These are usually formed for personal reasons like wealth management, estate planning, or taking care of minor children.

• Public Cum Private Trust

A Public-cum-Private Trust is a unique type of trust in India that serves both public and private interests. This means the trust’s income or assets are used partly for public welfare activities, such as running a school or hospital, and partly for supporting specific individuals or family members who are named in the trust deed.

Laws That Play a Crucial Role in Trust Registration

Here are the laws that play an important role in regulating trust:

• Indian Trusts Act, 1882

This is the main law that explains how private trusts work in India. It mentions the rights and duties of trustees and how a trust should be run. This Act is especially important for non-charitable or family trusts. It specifies how the settlor and trustees are expected to manage the assets and behave in the beneficiaries' best interests.

• Income Tax Act, 1961

Registered trusts that work for charitable, religious, or educational purposes can get tax benefits under this Act. Trusts registered under Sections 12A and 80G can receive donations that are tax-deductible for the donor. This encourages people to support social causes. The trust must comply with conditions like maintaining proper account books and filing returns regularly.

•  Societies Registration Act, 1860

Though this Act mainly governs societies, it’s important because societies and trusts often work in similar spaces like charity, education, and science. Some organizations may choose to register as a society instead of a trust, which depends on their goals. The two can also collaborate for larger causes.

Advantages of Trust Registration

Registering a trust has several advantages, especially for individuals or groups who are looking to impact through charitable, religious, or family-oriented work. Let us discuss the advantages of trust registration:

• Legal Identity and Recognition: A registered trust becomes a legal entity, which means it can open bank accounts, receive donations, buy property, and enter into contracts in its name. This official recognition helps in building credibility with the institutions, donors, and the government.
• Tax Exemptions: Once you are registered under the income tax act, a trust can apply for income tax exemptions. Donors can also claim tax deductions for contributions, which makes it easier to raise funds and support your case.
• Asset Protection: Assets owned by a registered trust are legally protected and managed as per the trust deed. This ensures that the resources are used only for the intended purpose and not misused.
• Structured Management: A trust deed clearly defines the roles of the trustees, the objectives of the trust, and the rules for how funds should be used. This transparency and structure make it easier to manage activities effectively and avoid future disputes.
• Eligibility for Government Funding: Many government grants and schemes are open only to registered entities, and registration increases your chances of receiving official support of partnership. 
• Public Confidence: Trust registration builds public trust. Volunteers, donors, and partners are more likely to support a transparent and legally registered organization.

Components of a Trust Deed

The following details include the components needed in a trust deed:

• Name of the Trust: This is the official name by which your trust will be recognized.
• Objectives of the Trust: A clear explanation of why the trust is being created, whether for education, medical help, or religious service.
• Legal Compliance Assurance: This clause confirms that the trust will always operate in line with Indian laws, which include the Indian Trusts Act, 1882, and relevant tax and local regulations. It keeps the trust accountable and transparent.
• Geographical Scope: Specifies where the trust will work within a specific city, state, or across India. This helps define its area of impact and operation.
• Operational Period: Mentions how long the trust will remain active. Some trusts are created for a limited term, while others are set up to last forever.
• Details of the Settlor: Lists the settlor’s full name, address, and the nature of assets such as money, land, or property that was contributed to the trust at the time of its formation.
• Board of Trustees Information: Clearly outlines who the trustees are, their qualifications, roles, responsibilities, and how long they will serve. This ensures good governance.
• Powers and Duties of Trustees: Explains what the trustees can and cannot do.
• Beneficiaries: Specifies who will benefit from the trust. It could be the general public, a community, or specific individuals.
• Registered Office Address: The official address where the trust operates.
• Trust Property: Details of any funds, land, or assets given to the trust at the time of its creation.
• Dissolution Clause: Mention what happens if the trust needs to be closed in the future.

Process of Trust Registration

Registering a trust in India is a structured legal process that gives your organization official recognition and benefits such as tax exemptions, credibility, and legal protection. Here are the steps involved to register a trust in India:

Step 1: Draft the Trust Deed

The trust deed is the legal document that outlines your trust’s name, objectives, trustees, powers, duties, and how the trust will operate. It must include all essential clauses such as trustee roles, amendment procedures, dissolution, and asset management.

Step 2: Choose the Trustees and Settlor

At least two trustees are required as more is better for credibility, along with a settlor, the person who sets up the trust and donates initial assets, which is often Rs. 1000 or property. The Trustees should be Indian citizens and must be over 18 years of age.

Step 3: Prepare Documents

You will need the following documents for trust registration:

• The original document and two photocopies of the trust deed.
• ID and address proofs of settlor and trustees like Aadhaar or PAN.
• Passport-size photos.
• Proof of registered office, which can be from the electricity bill or NOC from the landlord if rented.

Step 4: Visit the Sub-Registrar’s Office

Submit the trust deed to the sub-registrar in the district where the trust's office is located. All trustees and the settlor must be present with original IDs for biometric verification.

Step 5: Pay the Registration Fee

You will need to pay a small registration fee that varies by state and usually ranges between Rs. 500 and Rs. 1000, along with a stamp duty that is based on the trust property value, which must be paid at the registrar’s office.

Step 6: Get the Registered Trust Deed

Once the verification is complete, the sub-registrar will issue a certified copy of your registered trust deed. This legal document is the official proof of your trust registration.

Documentation for Trust Registration

Here is the list of documents needed to register a trust in India:

• Documents of the settlor, such as Aadhaar, PAN, passport-size photo, address proof
• Documents of the trustee, such as Aadhaar, PAN, passport-size photo, address proof
• Trust deed and photocopy of the trust deed with the respective stamp value
• Address proof of the registered office
• No objection certificate (NOC)
• Authentication from the partners, if applicable
• 12A registration and 80G certificates from the respective income tax authorities to claim deductions, if applicable.

Cost and Time Required for Trust Registration in India

Registering a trust in India is generally affordable, especially compared to the long-term benefits it offers. Let us discuss the cost and time needed to register a trust in India:

Registration Fee

The basic registration fee for trust registration is usually between Rs. 100 and Rs. 500, depending on the state. This is the fee paid to the local sub-registrar’s office.

Stamp Duty

• Stamp duty is a government tax you need to pay on the trust deed.
• It varies from state to state, which depends on the value of the property or assets being transferred to the trust.
• For example, in Delhi, stamp duty is Rs. 500, while in Maharashtra, it could be 1% of the trust property's value or Rs. 500, whichever is higher.

Timeline for Registration

• The process usually takes 1 to 3 weeks, which depends on your location and how quickly documents are submitted.
• In metro cities, it may be done faster if all the paperwork is ready.
• If you apply during busy periods or if your documents are incomplete, it might take longer.

Post Registration Compliance for Trusts in India

After registering a trust in India, trustees must adhere to several legal and financial obligations to ensure compliance and maintain the trust's credibility. These post-registration requirements are crucial for both public and private trusts, and they are as follows:

• Obtain a PAN Card: A PAN card is essential for all financial transactions and tax filings. 
• Income Tax Registration: To avail tax exemptions, trusts must register under Sections 12AB and 80G of the Income Tax Act, 1961. This enables donors to claim deductions and ensures the trust's income is tax-exempt. 
• Annual Income Tax Returns: Trusts are required to file annual income tax returns using Form ITR-7, regardless of income levels. If the trust's income exceeds the basic exemption limit, an audit by a chartered accountant is mandatory. 
• Maintain Proper Books of Accounts: Accurate record-keeping of all financial transactions is an important aspect. These records should be audited annually by a qualified auditor. 
• Conduct Annual Meetings: Trustees should hold annual general body meetings to discuss the trust's activities and financial status. The minutes of these meetings must be documented and preserved as it is confidential. 
• File Annual Reports: An annual report detailing the trust's activities and financial position should be submitted to the appropriate regulatory authorities. 
• Regular Review of Trust Deed: Trustees should periodically review the trust deed to ensure it aligns with current laws and the trust's objectives. Any amendments must follow legal procedures. 
• Beneficiary Communication: Trustees are obligated to maintain transparency with beneficiaries, which provides them with regular updates on the trust's activities and financial health. 
• Stay Updated with Legal Changes: Trustees must keep abreast of changes in laws and regulations that may affect the trust's operations and ensure timely compliance.

Compliance with Other Regulations

• Foreign Contributions: If the trust receives foreign donations, it must comply with the Foreign Contribution Regulation Act (FCRA) and submit relevant reports. 
• Tax Deduction Account Number (TAN): Trusts deducting tax at the source must obtain a TAN and file TDS returns accordingly.         

• Common Mistakes to Avoid When Registering a Trust

• Establishing a trust in India is a significant step toward achieving philanthropic goals or managing family assets. Certain common mistakes can hinder its effectiveness. The following details include the common mistakes to avoid when registering a trust:

• Incomplete or Vague Trust Deed

• The trust deed is the cornerstone of your trust, outlining its objectives, operations, and governance. An incomplete or ambiguous deed can lead to legal complications and mismanagement. Ensure it clearly defines the trust's purpose, details of trustees and beneficiaries, asset management protocols, and procedures for amendments or dissolution. Consulting a legal expert can help in drafting a comprehensive deed. 

• Unclear Definition of Roles and Responsibilities

• Ambiguity in the roles of trustees can result in conflicts and inefficiencies. The trust deed should explicitly state the duties, powers, and limitations of each trustee, which also includes decision-making processes and conflict-resolution mechanisms. 

• Lack of Professional Legal Guidance

• Navigating the legal complexity of trust formation and compliance requires expertise. Relying solely on informal advice can lead to oversights. Consulting a legal professional ensures that the trust adheres to all statutory requirements and is structured effectively. 

• Neglecting Post-Registration Compliance

Trusts must comply with ongoing obligations such as obtaining PAN and TAN, registering under Sections 12AB and 80G for tax exemptions, maintaining accurate financial records, conducting annual audits, and filing income tax returns using Form ITR-7. Non-compliance can lead to penalties or loss of tax benefits.

Dissolution of a Trust

Dissolving a trust in India is a significant legal process that requires careful consideration and adherence to the Indian Trusts Act, 1882. The procedure varies depending on whether the trust is private or public. Let us discuss them briefly:

Dissolution of a Private Trust

A private trust can be dissolved under several circumstances, and they are as follows: 

• By the Settlor: If the trust deed includes a revocation clause, the settlor can revoke the trust by executing a registered deed of revocation. 
• By Beneficiaries' Consent: If all beneficiaries are adults and legally competent, they can collectively agree to dissolve the trust. 
• Fulfillment or Impossibility of Purpose: Once the trust's objective is achieved or becomes unachievable, the trust can be dissolved. 
• Unlawful Purpose: If the trust's purpose becomes illegal or against public policy, it must be terminated. 
• Court Intervention: In cases of disputes or mismanagement, the beneficiaries have the right to approach the court to dissolve the trust. 

Dissolution of a Public Trust

Public trusts, especially those serving religious or charitable purposes, are generally considered irrevocable. However, dissolution is possible under specific conditions, which are mentioned below: 

• Impossibility of Purpose: If the trust's objective becomes impossible to fulfill, such as the destruction of the trust property, dissolution may be warranted. 
• Unlawful Purpose: If the trust's purpose becomes illegal, it must be dissolved. 
• Court Order: In exceptional cases, a court may order the dissolution of a public trust, especially if it's found to be a sham or involved in fraudulent activities. 

Key Steps in Dissolution

• Review the Trust Deed: Understand the provisions related to dissolution. 
• Obtain Necessary Consents: Secure agreement from all relevant parties, which includes beneficiaries and trustees. 
• Settle Liabilities: Clear all debts and obligations of the trust. 
• Distribute Assets: Allocate remaining assets as per the trust deed or legal directives. 
• Legal Documentation: Prepare and register necessary legal documents, such as a deed of revocation. 
• Court Approval: If required, seek court approval for the dissolution. 
• Update Authorities: Inform relevant authorities, which include the Income Tax Department, about the dissolution.

Creating and managing a trust in India is a meaningful way to support a good cause or manage family assets. But it's crucial to abide by the law, stay updated on compliance, and avoid common mistakes. With the right steps and guidance, a trust can truly make a lasting impact. In this article, we have discussed trust registration in detail. To get assistance and support in filing a trust registration in India from professional experts, contact Online Legal India.