Before getting information about ‘Trust Registration Process’ you must know about the Trust and Public Charitable Trust. You can get basic introduction about the Trust form of NGO.
Though Trusts are not defined clearly by the Income-tax Act, 1961 but they are relatable in the law sphere as an arrangement that hands over a property to or is vested in a person, to use and dispose it off for the benefit of another person. For Charitable Public Welfare activities the Tax exemption was granted in the section 11, 12 and 13 of the Income tax 1961. Government of India has made the amendment in the Income Tax Act in 2015 and cleared the “Charitable ” purpose. In the amendment the expression “Charitable Purpose” has been defined under Section 2(15) of the Act to include: (a) relief of the poor, (b) education, (c) medical relief and (d) advancement of any other object of general public utility.
It 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. To explain it in a simpler way, trust is the transfer of property by the owner to someone else for the benefit of a third person, along with or without himself or a declaration by the owner, to hold the property not for him and another.
Trusts are classified into two categories:
(i) Public trust: A public trust is the one whose beneficiaries include general public at large or a sizeable portion of it. A public trust is further categorized into (a) Public charitable trust, (b) Public religious trust.
Public Trust is known as Non Profit Charitable Organisation or Non Governemental Organisation (NGO).
(ii) Private trust: A private trust is the one whose beneficiaries are individuals or families. A Private trust is further categorized into:—
a) Private specific trust/ Private Discretionary Trust: in this case beneficiaries and shares both are determined.
b) Where both or either of the beneficiaries and their share are indeterminate.
However, a trust can be a blend of both. Such trusts are called Public-cum-Private Trusts.
In case of these trusts, a part of their income is used to promote public welfare while the other part goes to an individual(s). The part of income going to an individual(s) is assessable as private while the part used to promote public welfare is eligible for tax exemption under Section 11. The only condition applicable over here is that the trust must have been created before 1-4-1962, that is, before the commencement of Income- tax Act, 1961. Public-cum-private trusts created on or after this date are not eligible for tax exemption under Section 11.
This article aims at guiding you into registering a Public Charitable Trust. We have experience of registering trusts for various clients and know what real life problems come across while doing so. This article is an attempt to solve all such doubts, queries and confusions related to registering a public charitable trust. Before getting registration and going for Registration of Trust further you must have information about the basic concept behind a trust and few terms related to it.
- Author of Trust – The person reposing or declaring the confidence is the “author” or “settler” of the trust. According to the Indian Trust Act any person competent to contract, and/ or with the permission of a principal civil court of original jurisdiction, by or on behalf of a minor can create a Trust. But subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust property.
- Trustee – The person accepting the confidence shown reposed or declared by the author/ settler is called the “trustee”. Unlike societies, all or some of the trustees of the Trust can be closely related (i.e. they may belong to the same family). According to the Indian Trust Act following can be trustee:
- A person capable of holding property; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.
- Not bounded to accept the trust.
- Indication of acceptance with reasonable certainty by any words or acts of the trustee.
- Instead of accepting a trust, the intended trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the trust-property from vesting in him.
- A disclaimer by one of the two or more co-trustees vesting the trust-property in the other or others, and making him or them sole trustee or trustees from the date of the creation of the trust.
- A trustee has to fulfill the purpose of the trust while obeying the directions of the settler given at the time of its creation, except if modified by the consent of all the other trustees.
- A Trustee has the right to title a deed, reimburse expenses, settle accounts, give decrees etc. However, a Trustee cannot renounce after giving acceptance nor can he use the trust property for his own profit. He cannot delegate or act singly.
- Beneficiaries – People who are benefited by the confidence reposed by the author/ settler and accepted by the trustee are called the “Beneficiaries”. According to the Indian Trust Act beneficiary can be any person capable of holding property. A proposed beneficiary may renounce his interest under the trust by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent therewith. Beneficiaries have the right to rents, profit, and specific execution, ask copies of instruments of Trust, compel to any act of duty etc.
- Trust property – “Trust property/ Trust Money” is the subject matter of trust.
Instrument of Trust – “Instrument of Trust” is the instrument (if any) by which the trust is declared.
- Trust Deed– To register a Trust a memorandum has to be prepared first. This memorandum of Understanding is called as the Trust deed. It is the document stating and containing essential things with reasonable certainty. These are:
- The intention on the part of the author/ settler to create a trust.
- Purpose of the trust.
- Trust property, and
- Transfer of the property to the trustee.
It is a very essential instrument of a trust. It contains declaration of the aims, objectives and modes of management (of the trust). Trust deed proves the legal status of a Trust and is mandatory if property is involved, especially land and building so as to provide “A Prima Facie” evidence.
Procedures pertaining to the appointment and removal of trustees are mentioned in the Trust deed to eliminate any chance of discrepancy in the future. In case of any change in the trustees or their number or registered address of the trust or aims and objectives of the trust, a new Trust deed must be prepared. It must then be registered in the registrar office. Without a properly prepared complete Trust deed there are higher chances of confusions, issues and disputes arising in future. Your Trust shall face numerous problems even in procuring projects or raising funds. In fact, if not properly formulated Trust deed becomes useless and is similar to working without registration.
Some people commit the mistake of duplicating Trust deeds of existing trusts which is again a major blunder because every Trust is different and the memorandum should be prepared specifically targeting their particular needs. Thus, it is advisable to hire a Consultant because they are experienced in preparing Trust deeds that meet specific requirements. Preparing Trust deed is their major job.
To know more about Public Charitable Trust and Registration of Charitable Trust you can check and read the pages:
Public Charitable Trust – Introduction