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Updated on 28 May 2023 9.00 AM IST | 4 min read
What is Public Trust?
Public trust is an organization or NGO made for the benefit of the people. Its main purpose is to eradicate poverty, provide education to underprivileged children’s, providing medical relief etc. The general aim of a trust is to promote arts, science & literature. Trust cannot be amended or terminated without court permission. In order to govern public trust, there are no specific laws in India. However, some states have their own public trust acts. For example – Maharashtra & Tamil Nadu.
Types of trust
- Public trust - A Public trust is one whose beneficiaries include the general public at large. Additionally, in India, a public trust might be classified as -
a) A Public Religious Trust or
b) A Public Charitable Trust.
- Private trust - In India, a Private Trust is one that has individuals or families as beneficiaries. Additionally, a Private Trust in India might be classified as follows:
a) A Private Trust whose beneficiaries and requisite shares are easily determined;
b) A Private Trust whose beneficiaries or requisite shares are not easily determined.
Contents of Trust deed
The trust deed is the most important document which defines the formation of a trust, it's working, its functions & its closure.
The important clauses in a trust deed are as follows –
- Name of the trust
- Registered office
- Area of operation
- Assets of the trust
- Details of the founder
- Details of the board of trustees
- Powers & functions of management trustee & other trustees.
- A Quorum of the board along with the terms, tenure & qualification.
- Amendment & closure of the trust deed and the applicability of the act.
Documents Required for Trust Registration in India
The documents required for the registration of the trust are as follows –
Reason for registering a Trust
As per the public trust act, trust registration is mandatory in all states if its main motive is a charity or a transfer of immovable property in the name of the trust. Tax exemptions are also provided to the registered trust under sections 12A & 80G of the income tax act. Registration adds more credibility to the trust as it involves public money in the form of donations.
After doing the registration, the founder of the trust should apply for the following things –
Constitution of the Trust
The Board of trustees forms the trust and comprises of the following persons –
Tax exemption applicability for Trust
It is a general belief that trust need not have to pay tax as its main aim is to work for the benefit of the people, but it's not true. Trust is a legal entity like others and is liable to pay tax. In case if trust wants tax exemption, it has to obtain certification from income tax authorities for tax exemptions such as section 12A, 80G etc.
Benefits of Trust Registration
- Involvement in Charitable activities - Charitable trusts are established with the common goal of engaging in charitable activities while collecting benefits for the donor, his heirs, and successors.
- Tax exemptions for registered trusts - The other primary reason for establishing a registered trust is to take advantage of tax exemptions. These charitable trusts are not-for-profit organisations, and in order to take advantage of all of these benefits, the charitable trust must have a legal entity.
- Provides benefits to poor people - By conducting charitable activities fairly, the registered trust benefits the underprivileged and the public.
- Compliance with Law - A trust compliance is maintained under the provisions of the Indian Trusts Act, 1882, to protect the trust from legal hindrance.
- Family Wealth Preservation - Trusts can be used to own specific assets, such as land or a stake in a family business, that would be inappropriate or impractical for the settlor to divide between individuals. Through the use of trust, these individuals can benefit from the assets even though they do not own them. Additionally, a trust will assist in preserving the capital worth of such assets for future generations.
- Avoid probate court - Since legal title to the assets moves from the settlor to the Trustee when they are "settled," there is no change in ownership when the settlor dies, eliminating the requirement for probate of a will with respect to trust assets.
Moreover, while grants of probate are public documents, trusts are private agreements that do not need to be registered anywhere. Additionally, the use of trust might help alleviate the economic hardships that a surviving spouse may face while waiting for probate to be granted.
- Family immigration/Emigration - When a person and his/her family relocate to another country, it is frequently the ideal/only moment to establish a trust in order to avoid paying taxes in the destination country, thus protecting the family wealth and allowing for organisational flexibility. This type of organisation requires in-depth professional advice and guidance.
- Forced Heirship - Residents of countries with fixed legacy laws may be able to use trusts to profit from the flexibility they provide in distributing a portion or all of their assets to beneficiaries who would not be permitted to benefit under the rules of their home country. Such planning must be undertaken with the assistance of legal experts in their country of residence/nationality.
- Tax mitigation - Trusts can be quite effective at reducing capital and income taxes. The trust may provide effective protection against punitive taxes for the settlor, the beneficiaries, and the trust assets. A typical application of trusts is to mitigate or avoid inheritance tax in the settlor's jurisdiction, but this will, of course, need the settlor to receive useful tax advice.
- Asset Management - Trusts can be quite effective at reducing capital and income taxes. The trust may provide effective protection against punitive taxes for the settlor, the beneficiaries, and the trust assets.
What are the other certificates required to avail more benefits?
Other Certificates That May Be Required in Order to Receive Additional Benefits
- 80G Certificate - Under the 1961 Income Tax Act, an individual or organisation donating to a Trust is exempt from paying tax on the donation (Fully or partially).
- 12A registration - It is a one-time registration under the Income Tax Act, 1961, given by the Income Tax Department. This certificate exempts a non-governmental organisation from paying income tax on surplus income.
- FCRA Registration - Organizations seeking foreign contributions to promote the activities/work indicated in their company's mission statement must register with the FCRA. It is prohibited by regulation from receiving foreign contributions without the approval of the Government.
How does FinacBooks help in registering a Trust in India?
FinacBooks is a leading Indian portal providing accounting, finance & taxation services to small businesses. We have more than 10 years of experience helping trust founders in providing trust registration and tax exemption certificates at the least possible price. We will guide you through the entire process of trust registration. To avail of the best deals on trust registration, kindly call us at 8800221252, or you can also e-mail us at firstname.lastname@example.org.
Trust Registration FAQ’S
- Mismanagement of the trust
- Absence of trustees
- Disqualification of trustees
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