A charitable Trust is a legal entity that can be set up by any individual or group of individuals to carry out charitable activities. The main objective of setting up such an entity is to provide the donor with tax benefits and also to avoid paying income tax on donations received from donors.
When a donation is made, the donor gets back only 10% of the amount donated as tax relief. However, in the case of a Charitable Trust, you get 100% relief on your donation.
A Charitable Trust is a legal entity established for charitable purposes, such as the relief of poverty, education, or the promotion of religion. In India, charitable trusts are regulated by the Indian Trusts Act, of 1882, and are required to register with the Registrar of Trusts in the state where the trust is located.
Charitable Trust in India
The The Indian Trusts Act, 1882 defines a Trust 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.
- The person who reposes or declares the confidence is called the “Author of the Trust”.
- The person who accepts the confidence is called the “Trustee”.
- The person for whose benefit the confidence is accepted is called the “Beneficiary”.
- The subject-matter of the trust is called “Trust Property” or “Trust Money”.
- The instrument if any, by which the Trust is declared is called the instrument of Trust or Trust Deed.
Essential Elements for Trust Formation
The following elements are essential for the formation of a Charitable Trust:
- An Author or Settlor of the Trust
- The Trustee
- The Beneficiary
- The Trust Property or the Subject Matter of the Trust
- The objects of the Trust
As per Section 6 of the The Indian Trusts Act, 1882 a Trust is created when the Author of the Trust indicates with reasonable certainty by any words or acts the following:
- An intention on his part to created a Trust
- The purpose of the Trust
- The Beneficiary
- The Trust Property
- And transfers the Trust Property to the Trustee.
Reasons for forming a Charitable Trust
- Discharge of the Charitable an/or religious sentiments of the Author, in a way that ensures public benefit.
- For claiming exemption from Income Tax, as the case may be, in respect of incomes applied to charitable or religious purposes.
- For the welfare of the members of the family and/or other relatives, who are dependent on the settlor of the Trust
- For the proper management and preservation of property.
- For regulating the affairs of a provident fund, superannuation fund or gratuity fund or any other fund constituted by a person for the welfare of its employees.
The process of registering a charitable trust in India generally involves the following steps
- Obtaining the digital signature of the trustees: The trustees of the trust must obtain a digital signature certificate (DSC) and a director identification number (DIN) to complete the registration process.
- Drafting the trust deed: The trust deed is the document that outlines the objectives, rules, and regulations of the trust. It should be drafted by a legal professional and must be signed by the trustees.
- Filing the trust deed with the Registrar of Trusts: The trust deed must be filed with the Registrar of Trusts in the state where the trust is located, along with the necessary forms and documents.
- Obtaining the registration certificate: Once the trust deed has been filed, the Registrar of Trusts will review the application and may ask for additional information or documents. If the application is approved, the trust will be issued a registration certificate.
FAQs
Eligibility for registration as a charitable trust in India?
- It must be established for charitable purposes, such as the relief of poverty, education, or the promotion of religion.
- The trust must have a minimum of two trustees, who must be competent to contract.
- The trust must have a clear and specific purpose, and its objectives must be lawful and not opposed to public policy.
- The trust must have a written trust deed, which must be signed by the trustees and witnessed by at least two people.
- The trust must have a valid PAN and TAN
- The trust should have a minimum corpus of INR 1 Lakh.
Trust Deed?
A Trust can be formed by words or act and there is no requirement for a Trust Deed. However, a Trust Deed is desirable and required in some cases. When a private Trust pertains to an immovable property a written and executed trust deed is essential and shall also required to be registered except where the Trust is created by a will. In case of public Trust for immovable property, a written Trust deed is not mandatory but desirable. In relation to Trusts for movable property (public or private), a simple delivery of possession with a direction that the property be held under Trust, is sufficient; it requires no document or registration.
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