How to Start a TRUST REGISTRATION

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Overview of Trust Registration

In India, Trust Registration involves obtaining approval for the Trust Deed from the Registrar of the relevant jurisdiction. The Trust Deed is a legal agreement between the Settlor (the person creating the Trust) and the Trustee (the person managing the Trust). This Deed is a crucial requirement for the registration process. Trust Registration in India is governed by the Indian Trust Act, 1882. Most trusts in India are established as Public Charitable Trusts, which are non-profit entities aimed at promoting social welfare, healthcare, education, recreation, or other public welfare objectives.

What is a Trust?

A Trust is a legal arrangement in which the owner (Settlor) transfers property to a Trustee, who holds and manages it for the benefit of third parties (the beneficiaries). The transfer is made with the understanding that the Trustee will manage the property in accordance with the terms set out by the Settlor, benefiting the beneficiaries. The Indian Trust Act, 1882, governs the rules and regulations regarding Trusts in India, and registering a Trust is essential for availing its benefits.

Types of Trusts in India

  1. Public Trust: This type of Trust benefits the general public at large. Public Trusts in India are further categorized into:

    • Public Religious Trust
    • Public Charitable Trust

  2. Private Trust: A Private Trust benefits specific individuals or families. Private Trusts in India can be further divided into:

    • Determinate Private Trust: Where both the beneficiaries and their respective shares are clearly defined.
    • Indeterminate Private Trust: Where the beneficiaries or their shares are not easily defined.

Benefits of Trust Registration in India

  • The primary reason behind creating a Trust in India is to indulge in some charitable activities and, at the same time, also avail of the benefits of tax exemption. These charitable trusts are also called Non-Profit Organisations.
  • Trust can be used to allocate precise assets like land or an interest in the entity formed by the family, which otherwise wouldn't be practical for a trustor to split between individuals.
  • When a person and his family move to another country, it's a perfect event to set up a Trust to get rid of taxation in the destination country, thereby protecting the family assets & providing flexibility in its organisation.
  • The registered Trust facilitates the much-required financial help to the poor people & the masses through charitable activities.
  • Anyone can leverage Trust Registration as a tool for transferring an asset to the heir in the absence of a Will. As the title of the assets transfers from the Settlor to the Trustee in case they are settled, there is no alteration of ownership after settlor demise, hence, evading the necessity for probate of a will onTrust assets account.
 

Essential Documents Required for Trust Registration

The following are the key documents needed for Trust Registration in India:

  • Identity proof for both the Trustee and Settlor, such as Driving License, Aadhar Card, Voter ID, Passport, etc.
  • The objectives of the Trust as stated in the Trust Deed.
  • Recent photographs of the Trustee and Settlor.
  • PAN details for the Trustee and Settlor.
  • No Objection Certificate (NOC) from the landlord if the property is leased.
  • Proof of address for the registered office, such as property documents or recent utility bills.
  • Trust Deed with the appropriate stamp duty value.
  • Information about the Trustee and Settlor, including self-attested copies of their ID, address proof, and occupation.
  • The Trust Deed must include:
    • Number of Trustees
    • Proposed name of the Trust
    • Registered office address of the Trust
    • Proposed rules and regulations governing the Trust
    • Signature of the Settlor and two witnesses during registration.

Procedure for Trust Registration in India

The following is the step-by-step process for registering a Trust in India:

Step 1: Selecting an Appropriate Name for the Trust
The first step in the Trust registration process is choosing a suitable name for the Trust. The selected name must not be included in the restricted list under the Emblems and Names Act, 1950.

Step 2: Drafting the Trust Deed
The next crucial step is drafting the Trust Deed, which legally establishes the Trust. The Trust Deed should include the following key clauses:

  • Acceptance of Funds: This clause allows the Trust to accept donations, subscriptions, and contributions from individuals, government bodies, or charitable organizations in the form of cash or immovable assets. It also clarifies that any contributions contrary to the Trust's objectives are not acceptable.

  • Objects: This clause outlines the purpose and objectives for which the Trust has been established.

  • Power of the Trustees: This clause specifies the roles and responsibilities of the Trustees in managing the Trust.

  • Accounts and Audit: This requires the Trustees to maintain regular accounts and mandates the auditing of financial records by a certified Chartered Accountant (CA).

  • Winding Up: This clause outlines the procedure for the Trust's dissolution, ensuring that assets are legally distributed to the beneficiaries or a similar entity. It also addresses any tax liabilities resulting from asset transfers and mandates approval from the charity commissioner or the court to prevent legal disputes during the winding-up process.

 
 

Penalties for Breaching Trust Registration Compliances

  1. Tax Deduction Account Number (TDAN) Application:
    After Trust registration, it is mandatory for the Trust to apply for a Tax Deduction Account Number (TDAN) with the Assessing Officer using Form 49B, as provided by the Income Tax Department. This TDAN must be quoted on all relevant challans, TDS certificates, and returns submitted under sections 200, 206, 206A, and 206B. As per Section 272BB, if the Trust fails to obtain a TDAN, a penalty of Rs. 10,000 is imposed.

  2. Civil and Criminal Penalties:
    Non-compliance with the provisions of the Trust Deed can result in both civil and criminal penalties. Sections 405 to 409 of the Indian Penal Code (IPC), 1860, outline the penalties for criminal violations related to Trusts.

  3. Failure to File Income Tax Return (ITR):
    Failure to file the Income Tax Return (ITR) within the prescribed timeframe attracts severe penalties. If the Trust has not provided TDS certificates along with the ITR due to the taxpayer's default, the return will not be considered invalid. However, the taxpayer must submit the missing certificates within 2 years from the end of the relevant assessment year.