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Formation-of-Trust

Formation of Trust

Public Trusts, at times synonymous with foundations, can be created for public charitable purposes. There is no allIndialevel Act for setting up public charitable trusts. Some of the states inIndiahave enacted Public Charitable Trust Act, while most states inIndiado not have a trust act. An NGO can be created only under a public trust act. Madhya Pradesh and Rajasthan have independent state level public trust acts. Some states, likeWest BengalandBihar, do not have any act to register a public trust. A trust can be registered in one State, but the same may have a scope to operate in any number of States. In the state ofMaharashtraandGujarat, all organizations that are registered as ‘Society’ are by default also registered as Public Trust. The trustees are required to manage the trust and they are also liable for breach of the trust. Trustees are individually as well as collectively responsible for every action carried out on behalf of the trust.

A private trust, created under and governed by the Indian Trusts Act of 1882, aims at managing assigned trust property for private or religious purpose. A private trust does not enjoy the privileges and tax benefits that are available to public trusts or NGOs.

The basic concept of setting up a Public Charitable Trusts relies on the settler (creator or owner) of the trust setting aside some moveable and/or immovable asset to be used by the trustee (eg, administrator of the trust) for achieving the objects (must be legal purpose) of the trust as laid down by the settler. Benefits of such trusts shall be open to people irrespective of caste, creed or faith.)

InIndia, there are thousands of trusts created by the owner of industrial houses and rich individuals and their families. Public Charitable Trusts, under Indian laws are treated as organisations with charitable purpose entitling all the tax benefits applicable. Examples of Public Charitable Trusts promoted by business families are Sir Dorabji Tata Trust, Paragon Charitable Trust, etc.

Under Indian Trust Act, a settler can create a trust with his or her own personal property, designate one or more trustees and lay down the terms and conditions benefiting the identified beneficiary(ies) including one’s own child, relative or any other individual or group of individuals. Private trust or family trust is not a Public Charitable Trusts and hence does not enjoy the privileges entitled to a trust with charitable purpose.

 

What are the Advantages of Trust?

  • Simple process of registration.
  • Simple record-keeping and even simpler regulations.
  • Low possibility of interference by the regulator.
  • Exemption from tax due to charitable nature of operations.

 

What are the Disadvantages of Trust?

  • Tax exemption extended to societies may apply to public trusts only to the extent the Income Tax department accepts their activities as being charitable.
  • As a charitable institutional form, in essence inappropriate for the for-profit, financially sustainable strategic goal of finance operations;
  • No system of equity investment or ownership, thereby, making it less attractive for commercial investors interested in microfinance;
  • Commercial investors generally regard the investments in such entities risky primarily on account of their lack of professionalism and managerial practices and are, therefore, reluctant to commit large volumes of funds to such NGOs;
  • In accordance with Section 45S of the RBI Act, 1934, no unincorporated bodies are allowed to accept deposits from the public. Organisations registered under the Societies Registration Act and the Trust Act are considered unincorporated bodies. Therefore, according to the law, they are not even allowed to collect savings from their clients; and
  • Also vulnerable to the implication under the money lenders (prevention of usurious interest rates) acts of various state governments.

Documents required for trust

  • Detail of all members or trustees of the trust with their address and PAN no.
  • Certified true copies of the Institution’s Registration Certificate
  • Certified true copies of Laws & by-laws of the Institute
  • Copy of income tax registration certificate.
  • Audited Balance Sheet and Income & Expenditure account with Audit Report of last 3 years
  • The original copy of Trust Deed evidencing the creation of the Trust.

 

To form a Trust in India just fill this form:


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12 Comments on "Formation of Trust : How to form a Trust in India?"

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Rajesh jain
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how to create a family trust in Sikar,rajasthan what are the procedures

Vinod Reddy
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Can a trust be of profit motive?

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