What is Trust?
Trust is defined in section 3 of the Trust Act, 1882 as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner.” 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.
Definition of Charitable Purpose under Income Tax Provisions:
The expression “charitable purpose” has been defined under Section 2(15) of the Act to include:
• relief of the poor,
• medical relief,
• preservation of environment (including water sheds, forests and wild life)
• preservation of monuments or places or objects of artistic or historic interest and
• any other object of public utility
Creation of Trust:
There are following requirements for creation of a valid Trust in India:
• Author/Settlor/ Donor: The person who wants to transfer his property and reposes confidence on another for the creation of the trust.
• Trustee: The person who accepts the confidence for the creation of the trust.
• Beneficiary: The person who will benefit from the trust in the near future.
• Objective: Any Trust is created with a particular objective. Such objective should be stated clearly under the terms of a Trust Deed or verbally when there is no Trust Deed.
• Trust Property: There must be property (movable/immovable) which the Settlor wants to bequeath upon the Trustee for creation of a Trust.
• Trust Deed: A written document which is duly signed by the Settlor/Author and the Trustee, specifying the Objective and Beneficiary of the Trust so created.
• PAN: For the Trustee to pay tax on behalf of the Beneficiary(ies), it is required to apply for a Permanent Account Number (PAN). The application should be made before the Assessing
Officer, in duplicate, in Form No. 49A.
• TAN: If the Trust needs to deduct tax at source for its employees or other staff engaged to manage or administer Trust Property, then it needs to apply for Tax deduction Account Number (TAN) before the Assessing Officer, in duplicate, in Form No. 49B.
• FCRA Registration: Every Trust needs to apply for registration under Section 6(1), Foreign Contribution (Regulation) Act, 2010 (“FCRA”), if it is desirous of accepting donations from foreign sources.
• Separate account for Foreign Contributions (FC A/c): If the Trust wants to receive foreign donations and is registered under FCRA, it needs to open a separate account for this specific purpose.
• Separate set of records for foreign contributions: Every organization/individual needs to maintain separate set of records exclusively for the receipt and utilization of foreign donations/contributions.
• Approval from RBI: In case where the beneficiary is a non-resident, prior approval from RBI is required to that effect.
Registration of Trust:
12A registration is one time exemption obtained by most Trusts, right after incorporation to be exempted from paying income tax. Section 8 Company, Trusts and NGOs having 12A registration enjoy exemption from paying income tax on the surplus income of the Trust or NGO. Income tax exemption is available for all non-profit NGOs. Private or family trusts are not allowed such exemptions and cannot obtain 12A registration. Section 80G of the Income Tax Act’1961 provides deduction while computing the total income in the hands of donor. It provides deduction in respect of donations to certain funds, charitable institutions, etc.
• Duly filled in Form – 10A for registration u/s 12A registration
• Duly filled in Form – 10G for registration u/s 80G registration
• Registration Certificate and MOA /Trust Deed (two copies – self attested by Trust head)
• NOC from Landlord (from registered office)
• A Copy of Pan card of the Trust
• Photocopy of Electricity Bill / House tax Receipt /Water Bill
• Evidence of welfare activities carried out & Progress Report since inception or last 3 years
• Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3years
• List of donors along with their address and PAN
• List of governing body or board of trustees members with their contact details
• Original Registration certificate , MOA Trust deed for verification
• Compulsory Audit of Accounts: When the total income of a Private Trust exceeds the limit given under the Income Tax Act, 1961 for non-taxable income, it should be compulsorily audited by a Chartered Accountant.
• Annual Return of Income:After the accounts of the Trust are being audited by the Chartered Accountant, the audit report should be filed along with the Annual Return of income under Form ITR-7 on or before the due date.
• Report of Foreign Contributions: Every Trust which receives foreign contributions needs to submit a report, duly certified by a Chartered Accountant and accompanied by an Income and Expenditure Statement, Receipts and Payments Account and Balance Sheet within 9 months of the closure of the financial year, to the Secretary, Ministry of Home Affairs, Government of India, New Delhi. A ‘Nil’ Report needs to be submitted if no such contribution is received during the last financial year.
• Submission of Annual Account Statement of FC A/c: Duly certified copy of the Account Statement of FC A/c needs to be furnished within 9 months of the closure of financial year along with Report mentioned above.
• Issue of Certificate of TDS: Where any Private Trust is deducting tax at source for payment of salaries to the staff or employees (kept for managing the Trust Property), it needs to furnish certificates of TDS to the persons on whose behalf TDS was being collected. It should be done within 1 month from the date of closure of the financial year.
• Publication of Accounts in newspaper:Where annual income or receipts of the Trust (generated from the Trust Property) exceeds Rs. 1,00,00,000 (INR One Crore).