Forming a Trust in India
A trust can be formed as per Section 4 of the Indian Trust Act, 1882, for a lawful purpose. A trust should have a document written and signed by trustees or a sole trustee. A trust can be formed through a will also. Therefore, there is no definite form to create a trust. Objectives of the trustee should be clear and unambiguous.
A minimum of two persons are required to form a trust, which can be set up by executing a trust deed on non-judicial stamp paper after paying the necessary stamp duty as applicable. The trust deed enumerates the aims and objects and mode of management of the trust. Minimum two trustees are required to register a Trust.
Voluntary Organisations & Non-Governmental Organisations
Voluntary Organisations (VOs) / Non-Governmental Organisations (NGOs) include organisations engaged in public service, based on ethical, cultural, social, economic, political, religious, spiritual, philanthropic or scientific & technological considerations. VOs include formal as well as informal groups, such as community-based organisations (CBOs); non-governmental development organisations (NGDOs); charitable organisations; support organisations; networks or federations of such organisations; as well as professional membership associations.
VOs / NGOs should broadly have the following characteristics:
- They are private, i.e., separate from Government.
- They do not return profits generated to their owners or directors.
- They are self-governing, i.e., not controlled by Government.
- They are registered organisations or informal groups, with defined aims and objectives.
Benefits of forming an NGO as a Public Charitable Trust
It is also pertinent to note that an NGO (also known as a Non-Profit Organisation) can be set up in the form of a “Public Charitable Trust”. Forming an NGO in this form will have the following benefits:
- Unlike Society or Section 8 Company, formation of Trust is easier, quicker and less time-consuming.
- Minimum two trustees are required to form a trust, whereas in a Society a minimum of 7 members are required to form a Society.
- There is no maximum limit to the number of trustees on the Board of a trust.
- Trust can get registered under Section 12A and Section 80G of the Income Tax Act, 1961, provided its activities qualify for such registrations.
- Registration of the Public Charitable Trust under Section 80G will enable the donor of the NGO / Trust to avail 50% deduction of such donations under this section, from his taxable income.
- Registration of the Public Charitable Trust under Section 12A of the Income Tax Act, 1961, will enable the Trust to claim income tax exemption under Sections 11 and 12 of the Act, subject to the provisions of the Act.
- The compliance burden is less compared to Society and Section 8 Company.
- Compared to Society and Section 8 Company, management and administration of the Trust are simple.
What we provide for a Trust
- Drafting of Trust Deed and application for registration.
- Formation and registration of Trust with the Registrar.
- Applying for PAN and TAN.
- Applying for 12A and 80G registration for eligible trusts and renewal of the same.
- Audit of Trust under Section 12A(1)(b) and filing of Audit Report under Form 10B with Income Tax Department.
- Filing of Income Tax Returns.
- Assistance in accounting, book-keeping, payroll processing, back-office management and other statutory compliances.
- Assistance in amendment of Trust and updating the same with the Registrar.
For a brief understanding, below we have enumerated a few frequently asked questions.
Frequently asked questions
Q1. What are the purposes for which a trust can be formed?
Trust cannot be formed for the following purposes under Section 4 of the Act:
- Unlawful purposes.
- Against provisions of the Indian Trusts Act, 1932, rules made thereunder.
- If there are provisions for cheating etc. in the trust.
- If the trust is intended to cause loss or damage to one’s property.
Q2. Who can form a trust?
The following can form a trust under Section 7 of the Indian Trusts Act, 1882:
- A person capable of making a contract can form a trust.
- Trust can be formed on behalf of a minor with permission of the Civil Court.
Q3. What are the documents for registration of Trust?
- Drafting of Trust Deed and printing and signing of the same on Stamp Paper after paying stamp duty.
- PAN Card, photo, self-attested ID and address proof of the Trustees.
- Proof of registered address (rental / lease agreement along with utility bill and NOC).
- Proof of property registered in Trust name.
Q4. Can a trust be cancelled?
A trust can be cancelled on the following grounds as per Section 78 of the Indian Trust Act, 1882:
- Trust can be cancelled at the will of the trustees.
- Trust can be cancelled if there is provision for cancellation in the deed.
- If the author of trust creates trust for the purpose of repayment of his debt and if this is not informed to the creditor, the author can cancel the trust.
Q5. Can the defects in the trust be cured by amendment?
Yes, the amendment can be made by rectification or supplementary deed.
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