TAXATION OF TRUST
A Trust is a kind of arrangement which originates from a settlement between the Settlor/Author (owner of the property) and the Trustee (the transferee) for the beneficial interest of a third person called Beneficiary.
- In India, in general, there are various types of Trusts e.g. Private Trust, Public Trust, Charitable Trust, Religious Trust.
- This arrangement gives rise to the concept of split-ownership where the Trustee becomes the legal owner and the Beneficiary becomes the beneficial owner.
- A Trust Property can be movable and immovable and the Settlor/Author of the Trust Property can create/declare a Trust during his lifetime or even after his death through a will.
Registration of Trust
To register as a trust in India, the following steps have to be complied with,
- A Trust Deed
- Submission with the Local Registrar:
- Trust Deed on stamp paper of requisite value (as stated above).
- One passport size photograph & copy of the proof of identity of the settlor, each of the two trustees and each of the two witnesses individually.
- Signature of the settlor on all the pages of the Trust Deed.
- Two persons must be called in as witnesses to sign on the Trust Deed.
- The Trust Deed must be submitted to the Local Registrar along with one photocopy for registration. The photocopy should also contain the signature of the settlor on all the pages. At the time of the actual registration, the settlor and the two witnesses are required to be personally present, along with their original identity proof.
- The Registrar will retain the photocopy & return the original registered copy of the Trust Deed to the concerned parties.
- As per section 11, if the charitable or religious trust spends more than or equal to 85% of its total receipts towards its object in India, then there is no tax on balance 15%.
- The amount spent even for the fixed asset of the trust is also eligible to be included in 85%.
Income Tax Regulations
- If the trust has not received whole of the income, then for the purpose of determining above 85%, the amount so much not realized is to be taken out from the total receipt.
- If the trust cannot spend more than 85% in any year due to any other reason make Investment in savings certificates issued by the Central Government, Post Office Savings Bank; scheduled bank or a co-operative society engaged in carrying on the business of banking
- If trust can accumulate the amount for any purpose within its objects either for revenue or for capital expenses
- Such accumulation in any case should not exceed 5 years.
- Trusts having 12A registration enjoy exemption from paying income tax on the surplus income of the Trust.
- Registration u/s 12A is applied through form 10A.
- Registration u/s 80G of the Income Tax Act’1961 provides deduction while computing the total income in the hands of donor.
- Registration u/s 80G is applied through form 10G.
Annual and Regular Compliance
- Auditing of Accounts by a Chartered Accountant (Form 10B).
- Filing the Income Tax Return (Form ITR7).
- Foreign Contributions Report.
- Carry forward of unutilized amount for expenditure(Form 9A).
- Furnishing Certificates of TDS if required.
- Publication of Accounts in newspaper if receipts exceed Rs 1cr.
- Filing of GST Returns if required