Trust Registration in India: Step by Step Guide
This article intends to explain all aspects of Trust Registration extensively. It explains the benefits of creating a Trust, and the different kinds of trusts that exist. It provides a comparative analysis between the Private and Public Trust and analyses the role of the Trustee by explaining his rights as well as liabilities. Most importantly this article provides… Read More »
This article intends to explain all aspects of Trust Registration extensively. It explains the benefits of creating a Trust, and the different kinds of trusts that exist. It provides a comparative analysis between the Private and Public Trust and analyses the role of the Trustee by explaining his rights as well as liabilities.
Most importantly this article provides a step by step guide on the procedure of registering a trust and explains why it is beneficial to do so. The different Acts that govern trusts in India are the Indian Trusts Act 1880, the Charitable and Religious Trust Act, 1920, the Religious Endowments Act 1863, and the Charitable Endowments Act 1890. This article concludes though a Frequently Asked Questions column to address some important queries.
I. Introduction to Trust Registration in India
A trust is based on the fiduciary relationship between two parties. One is the Trustor, and the other is the Trustee. The Trustee receives the right to hold property or title for the benefit of a third party. As per section 3 of the Indian Trusts Act 1880, the definition of a trust is as follows –
“Trust is 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”
Trusts are created in order to provide legal protection for the assets of the trustor’s. A trust helps in ensuring that the assets are distributed as per the trustor’s desires, in an efficient manner to save time and paperwork. Trusts are formed by settlers, along with legal aid from a lawyer, to determine how to transfer assets to the trustees. The regulations and rules of every trust is dependent on the terms on which it was built.
II. Kinds of Trust
There are two kinds of trusts –
- Private Trust
- Public Trust
The Private Trusts are regulated as per the Indian trusts Act 1882. Public trusts are governed by the Charitable and Religious Trust Act, 1920, the Religious Endowments Act 1863, the Charitable Endowments Act 1890, the Bombay Public Trust Act, 1950.
Trusts can also be utilized for the sake of investments. For instance, mutual funds and venture capital funds. These trusts are subject to the regulations of the Securities and Exchange Board of India. The Trust is often used to plan tax and manage resources. It is also a device for the protection of assets.
The intent of creating trust helps in placing the trusts in different categories. –
- Simple Trust – The Trustee has no active obligations and is more in the nature of a passive depository.
- Special Trust – The Trustee has active obligations and instructions to behave like an agent in order to fulfil the Grantor’s wishes.
- Private Trust – Settler devices a fund for the sake of the beneficiary.
- Public Trust – The intent is associated with charity and the trust is created for public welfare.
Comparative Analysis between Public and Private Trust
There are multiple differences between public and private trust. One of the most prominent distinguishing characteristics is to see who the beneficiaries of the trust are. If the beneficiaries are a large or significant portion of the public, then the trust is a public one.
A public trust exists ‘for the purpose of its objects, the members of an uncertain and fluctuating body,’ and is managed by a board of trustee.
In a situation where there are a limited and particular number of beneficiaries, it is a private trust. For instance, the employees of a company together can form a private trust. In the case of Deoki Nandan v. Murlidhar, the Court laid down this difference between Public and Private Trust.
III. Who is eligible to create a Trust?
To be eligible for creating a Trust, one has to be over the age of eighteen, mentally sound and competent to contract according to Section 11 of the Indian Contract Act, 1872. This eligibility criterion is mentioned in Section 7 of the Indian Trusts Act 1882. Besides individuals, trusts are often also created by Hindu Undivided Family, an Association of Persons, a Company and a Guardian on behalf of the minor, after seeking permission from the principal civil court of original jurisdiction.
IV. Who is eligible to be a beneficiary?
Every individual capable of holding the property is eligible to be a beneficiary. Every individual capable of holding the property is eligible to be a trustee but if the trust involves the trustee using his discretion, he cannot execute it unless he is competent to contract.
V. Procedure for Registration | Step by Step Guide
A Public Charitable Trust needs to be registered with the office of the charity commissioner who has jurisdiction over the Trust. The procedure of registering a Trust is as follows –
1. Selecting a Suitable Name for the Trust
This is the first step that needs to be taken. The name chosen must not be a name that is restricted as per the sections of the Emblems and Names Act, 1950.
2. Select the Settlers and Trustees of the Trust
A minimum of two trustees is required to create a Trust. However, there is no bar on the maximum numbers of trustees that a Trust can have. The Settler cannot be the trustee and must be residing in India.
3. To draft a Memorandum of Association (MOA) and the Trust Deed
The Trust Deed should contain all the regulations and administrative instructions that will govern the Trust. The Deed is, in fact, the legal evidence of the veracity of the Trust. It additionally contains bylaws that dictate how the changes, removal and addition of Trustees should take place.
Memorandum of Association is essentially the charter of the Trust as it defines the relationship between the Trustor with the Trustees. The Memorandum of Association also mentions the intent and purpose of creating the Trust. It must include the personal details of their members, like their names, addresses and occupations as well as their signatures.
4. At the time of registration, the following documents need to be submitted:
- The Trust Deed
- A self-attested copy of the identity proof of the settler. For instance, the Aadhar Card, passport, voter ID etc.
- A self-attested copy of the identity proof of the trustees. For instance, the Aadhar Card, passport, voter ID etc.
- The Proof of the Trust’s registered office address. One could use the electricity or water bill as evidence here.
- The No-Objection letter by the Landowner.
5. Stamp Paper
It is mandatory for the Trust Deed to be prepared on the Stamp paper. One must also pay a fee of Rs. 1100. Rs. 100 is the registration fee and Rs. 1000 are paid to keep a copy of the Trust Deed with a sub-registrar. After submitting the papers, one has to collect their certified copy of the Trust Deed from the registrar’s office. It is usually available within seven working days.
6. Submit the Trust Deed with the Registrar
After one has obtained the certified copy of the Trust Deed, it needs to be submitted along with the properly attested copies with the local registrar. The settler has to sign on every single page of the Trust deed’s photocopy.
The physical presence of the settlers along with two other witnesses is necessary, in addition to their identity proof at the time of the registration. The ID proof includes both the original as well as the self-attested copies.
7. Receiving the Registration Certificate
After one has submitted the Trust Deed to the registrar, the registrar keeps the photocopy with himself and gives back the original Trust Deed document. Therefore, after all the formalities have been fulfilled, the registration certificate is issued. It usually takes seven working days to get the Registration Certificate.
Taxation of Trusts
A Trust can be exempted from paying income tax on its surplus income if they acquire the 12A certificate from the Income Tax Department. The taxation of Charitable Trusts is governed by Sections 11-13 or the Income Tax Act 1961.
Section 11 speaks about the procedure through which income is exempt from income tax while Section 12 refers to the income of trust from contributions. Section 12A states the conditions necessary for registration while Section 12AA explains the procedure of registration. Section 13 states the exceptions where Section 11 may not apply.
In the case of Paramount Education Charitable Trust v. Commissioner of Income Tax, the tribunal held that registration under Section 12A cannot be denied only because the organization had not been registered under Societies Act. This is because the assessee-trust was found to be indulging in charitable activities.
Similarly, if the trust holds property wholly and exclusively for charitable and religious intent and participates in charitable activities, then such a trust cannot be refused registration only on the basis of its activities being provided abroad as well. It is also necessary to note that the only the income which is used for charitable activities within India can be eligible for exemption. This was held in the case of Critical Art and Media Practices v. Director of Income Tax.
VI. The Rights and Authority of the Trustee
1. Right to Title
A trustee has the right to possess the instrument of trust. They are also entitled to all documents of title related to the property of the trust.
2. Indemnity from Gainer of Breach of Trust
If a breach of trust occurs, and another person, besides the trustee, has gained benefit from this breach, then that person will have to indemnify the trustee. It is essential to note that if the trustee is found guilty of committing fraud regarding that breach of trust, they are no longer entitled to this indemnity.
3. Settling of accounts
Once the trustee has fulfilled all his duties, he has the right to have the accounts of his administration of the trust property examined and settled.
4. General Authority
A trustee is entitled to perform all acts that are reasonable, suitable and necessary for the security or advantage of the trust property and the protection of a beneficiary who may not be competent to contract.
5. Power to Convey
Section 39 grants the trustee the power of conveyance. Many times, the completion of sale necessitates certain obligations like the formality of conveyance. This section states that after completing the sale, the trustee has the authority to convey to the person as may be necessary.
6. Power to manage Trust Property
In the situation where multiple trustees may have the authority to deal with trust property, and one of the trustees disclaims or dies, the authority can be exercised by the remaining trustees.
7. Authority to Sell
In a situation where the trustee has the authority to sell the property of the trust, he can sell the property subject to charges or free of them. This can only happen if the Trust deed grants him the authority to sell. He is free to sell the entire property in one transaction or through a series of instalments, and he also has the discretion to sell either by a public auction or privately.
VII. Frequently Asked Questions
Q1. Is Registration Mandatory?
It is mandatory to register a trust when it is declared by a non-testamentary instrument. Even if that instrument is exempted from registration as per The Registration Act 1908, it is still necessary to register it. In the scenario of a Private Trust declared through a will, registration is not compulsory even if it is a matter of immovable property.
In the case of Charitable or Religious Trust that includes an immovable property and intends to claim an exemption under Section 11 of the Income Tax Act 1961, it is mandatory that the instrument is registered.
Each state is allowed to form its own legislation to govern trusts in its own state.
A trust, similar to a Society, is allowed to receive funds and projects. In order to obtain funds and projects, a Trust should meet specific criteria.
Q2. Which Trust Act applies to my state?
Here is a list of relevant State Acts-
- Bombay Public Trusts Act, 1950 and Bombay Public Trusts Rules, 1951
- Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987
- Bihar Hindu Religious Trusts Act, 1950
- Karnataka Hindu Religious Institutions and Charitable Endowments Act, 1997 and
- Karnataka Hindu Religious Institutions and Charitable Endowments Rules, 2002
- Orissa Hindu Religious Endowments Act, 1951
- Kerala Travancore-Cochin Hindu Religious Institutions Act, 1950
- Rajasthan Public Trust Act, 1959
- Tamil Nadu Hindu Religious and Charitable Endowments Act, 1959
- The Madras Hindu Religious and Charitable Endowments Act, 1951
- Uttar Pradesh Charitable Endowments (Extension of Powers) Act, 1950 and
- Charitable Endowments (U.P. Amendment) Act, 1952
- United Provinces Charitable Endowments Rules, 1943
- Religious Endowments (Uttar Pradesh Amendment) Act, 1951
 Deoki Nandan v. Murlidhar, 1957 AIR 133 1956 SCR 756
 Income Tax Act 1961
Paramount Education Charitable Trust v. Commissioner of Income Tax, ITA No.3119/Ahd/2014
 Critical Art and Media Practices v. Director of Income Tax., ITA No.736/M/2013
 Section 31 of The Indian Trusts Act 1880
 Section 33 of The Indian Trusts Act 1880
 Section 35 of The Indian Trusts Act 1880
 Section 36 of The Indian Trusts Act 1880
 Section 39 of The Indian Trusts Act 1880
Section 44 of The Indian Trusts Act 1880
 Section 37 of The Indian Trusts Act 1880