Legal compliances for establishment and maintenance of trusts 

Legal compliances for establishment and maintenance of trusts 

Legal compliances for private trusts

• PAN: For the Trustee to pay tax on behalf of the Beneficiary(ies), it is required to apply for a Permanent Account Number (PAN). The application should be made before the Assessing Officer, in duplicate, in Form No. 49A.
• TAN: If the Trust needs to deduct tax at source for its employees or other staff engaged to manage or administer Trust Property, then it needs to apply for Tax deduction Account Number (TAN) before the Assessing Officer, in duplicate, in Form No. 49B.
• FCRA Registration: Every Trust needs to apply for registration under Section 6(1), Foreign Contribution (Regulation) Act, 2010 (“FCRA”), if it is desirous of accepting donations from foreign sources.
• Separate account for Foreign Contributions (FC A/c): If the Trust wants to receive foreign donations and is registered under FCRA, it needs to open a separate account for this specific purpose.
• Separate set of records for foreign contributions: Every organisation/individual needs to maintain separate set of records exclusively for the receipt and utilization of foreign donations/contributions.
• Approval from RBI: In case where the beneficiary is a non-resident, prior approval from RBI is required to that effect.
• Compulsory Audit of Accounts: When the total income of a Private Trust exceeds the limit given under the Income Tax Act, 1961 for non-taxable income, it should be compulsorily audited by a Chartered Accountant.
• Annual Return of Income: The audit report should be filed along with the Annual Return of income under Form ITR-7 on or before the due date.
• Report of Foreign Contributions: Every Trust which receives foreign contributions needs to submit a report, duly certified by a Chartered Accountant and accompanied by an Income and Expenditure Statement, Receipts and Payments Account and Balance Sheet within 9 months of the closure of the financial year, to the Secretary, Ministry of Home Affairs, Government of India, New Delhi. A ‘Nil’ Report needs to be submitted if no such contribution is received during the last financial year.
• Submission of Annual Account Statement of FC A/c: Duly certified copy of the Account Statement of FC A/c needs to be furnished within 9 months of the closure of financial year along with Report mentioned above in point 3.
• Issue of Certificate of TDS: Where any Private Trust is deducting tax at source for payment of salaries to the staff or employees (kept for managing the Trust Property), it needs to furnish certificates of TDS to the persons on whose behalf TDS was being collected. It should be done within 1 month from the date of closure of the financial year.

Registration process for private trusts

Steps for registration:

Before registering a trust, following are to be finalized:

• Name of the trust
• Office of the trust
• Objects of the trust
• One settler of the trust
• Two trustees of the trust
• Two witnesses
• Property of the trust-movable or immovable

1. Prepare a Trust Deed on stamp paper of the requisite value. The trust deed shall contain memorandum, rules and regulations and bye laws of the trust.

2. Requirements for registration of Trust Deed with the Local Registrar under the Indian Trusts Act, 1882:

• Trust Deed on stamp paper of requisite value
• One passport size photograph & copy of the proof of identity of the settler
• One passport size photograph & copy of the proof of identity of each of the
• two trustees.
• One passport size photograph & copy of the proof of identity of each of the
• two witnesses.
• Signature of settler on all the pages of the Trust Deed
• Address proof of registered office. This can be registration certificate, water bill or electricity bill. If the office is leased, the Non-Objection letter of the owner along with his identity proof.
• Evidence of the property of the trust and its value.
• Witness by two persons on the Trust Deed.

3. Go to the local registrar & submit the Trust Deed, along with one Photocopy, for registration. The photocopy of the Deed should also contain the signature of settler on all the pages. At the time of registration, the settler, trustees & two witnesses are required to be personally present, along with their identity proof in the original. The trust is registered upon payment of registration fee.

4. The Registrar retains the photocopy and returns the original registered copy of the Trust Deed. registration will be confirmed within seven days.

Registration of charitable trusts

The same requirements shall be fulfilled and documents shall be submitted for registration of a charitable trust. Additionally following compliances shall be observed:

• The objectives of the trust as per the object clause in the trust deed shall be a charitable purpose. Section 2(15)​ of the Income Tax Act defines “charitable purpose” to include relief of the poor, education, medical relief, preservation of the environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
• The public charitable trust shall be registered at the office of the charity commissioner.
• Registration under section 10(23)c of income tac act.
• Registration under section 12AA of income tax act.
• Application with form 10G along with the trust deed to the income tax office to obtain certificate under section 80G to grant an individual donor specific tax deduction.
• Submit a statement of donations received in such form & manner as may be prescribed & the benefit of 80G shall be available to donors on the basis of information relating to donation furnished by the corresponding charitable trust or institution.
• Application for renewal after five years must be made for registration under section 12AA and section 80G at least six months prior to the expiry of the five years validity period.