What is meant by Trust?

As defined in Section 3 of the Indian Trusts Act, 1882, a 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. Public Trust as per Section 2 (13) B.P.T. Act, 1950 means an express or constructive trust for either a public religious or charitable purpose or both and includes a temple, a math, a wakf, church, synagogue, agiary or other place of public religious worship, a dharmada or any other religious or charitable endowment and a society formed either for a religious or charitable purpose or for both and registered under the Societies Registration Act, 1860. For the creation of a valid Trust, it is necessary that the author of the Trust must indicate with reasonable certainty : a) intention to create the Trust, b) the purpose of the Trust, c) the beneficiary and d) the trust property.

Q. 2. Who is a Trustee ?

Trustee means a person in whom either alone or in association with other persons, the trust property is vested and includes a manager. One who has accepted trusteeship and undertaken to administer the trust, should know what is expected of him. He must in the first instance examine and study the instrument of trust. A trust is created by a Deed of trust, or by a Will or by a Scheme framed by a Court or by a written constitution. It is also essential that the trust must be accepted by the trustee. He will be presumed to have accepted the trust, unless the intended trustee disclaims it within a reasonable period and such disclaimer prevents the property from vesting in him. Where the number of trustee is more, a disclaimer by one or more of them vests the property in the remaining trustee or trustees from the date of possession of the trust.

Q. 3. What are the types of Trust?

Trust may be either private trust or a public trust. Depending on the nature of trust, they are classified for maintenance of record under B.P.T. Act, 1950 as follows. a) A Hindu religious trust, b) B Muslim trust, c) C Parsi trust, d) D Christian trust, e) E Trust registered on the basis of Trust Deed and f) F Societies converted into trust.

Q. 4. Who owns the trust property?

Trust property is always vested with the trustees for its proper administration. The legal ownership of the trust property is of the trust and trustees are having restricted interest to the extent of proper administration of the properties in the interest of trust.

Q. 5. Is trust registration mandatory?

Under Section 18 sub clause 1 of B.P.T. Act, 1950, it shall be the duty of the trustee of a public trust to which this Act has been applied to make an application for the registration of the public trust. The mode of making application and the necessary contents are mentioned in Section 18 of B.P.T. Act, 1950.

Q. 6. What are the benefits in forming a trust?

Trust ones registered gets a legal entity and is governed by provisions of B.P.T.Act, 1950. The entire supervision and control of the registered trust is with the Deputy or Asstt. Charity Commissioner of that region being the custodian of trust. The income and expenditure of the trust is properly regulated with annual audit from competent authority.

Q. 7. What can be the objects of trust?

In order to bring the trust within purview of B.P.T. Act, 1950, the objects of the trust must be either the religious or charitable. The charitable objects may be of any kind including imparting education, providing medical aid, helping the poor etc. It is incumbent to mention the objects specifically in the application for registration of the trust. In case the Deputy or Assistant Charity Commissioner, after having recorded their findings, finds that the objects mentioned by the trustees in their application are described vaguely, he may start suo motu inquiry under section 22A of the Bombay Public Trusts Act, 1950, for particulars specifying distinctly as to what the objects are.

Q. 8. Are all Societies trust?

In view of definition of Public Trust under section 2 (13), public trust includes society formed either for a religious or charitable purpose or for both and registered under the Societies Registration Act, 1860. All societies registered under the S.R. Act, 1860 are converted into public trust under B.P.T.Act, 1950 after necessary inquiry and following the procedure under B.P.T.Rules, 1951.

Q. 9. In case of complaint about trust, trustee or trust property, who must be approached?

In case of any grievance about administration of trust, trust properties or functioning of a trustee complaint can be filed by any person to the Deputy or Asstt. Charity Commissioner within whose jurisdiction the trust is situated.

Q. 10. Can any citizen get information about any trust?

Yes. Any person can get information about any trust from the concerned P.T.R. Office on depositing the necessary charges for inspection or obtaining the certified copies. The right to get information is now also governed by Right to Information Act, 2005.

Q. 11. Who is supervising authority of trust?

Deputy or Asstt. Charity Commissioner is the supervising authority of the trust situated within his territorial jurisdiction. Charity Commissioner is the head of organization for entire Maharashtra. Joint Charity Commissioners are the head of offices of regional level and Deputy or Asstt. Charity Commissioners are the head of offices at District level.

Q. 12. Can information be gathered about funds of any trust?

Every trust is required to submit audited statement of accounts with the office of Assistant Charity Commissioner. The information about the income and expenditure of the trust for annual year can be gathered from the audited statements submitted to the authority.

Q. 13. Is it necessary to record or inform any change to the authority?

Yes. It is mandatory to inform any change which occurs in the trust in respect of the trustees, moveable or immovable properties etc. within a period of 90 days from the change as provided under section 22 of the B.P.T. Act, 1950. The change so informed is necessary to be recorded on satisfaction of its legality and validity to the authority. It is the duty of trustee to inform the change and also substantiate the same with record about its legality and validity.

Q. 14. Whether donations received by trusts are exempted from Income tax?

The donations received by any trust are fully governed by the Income Tax Act. The relevant provisions of Income Tax Act are applicable. In case of a trust having certificate under Section 80 G of Income Tax Act, the donations received by them are exempted subject to I.T. Act.

Q. 15. Can any person become trustee of any trust?

Every trust is administered by its own trust deed, rules and regulation or scheme. There is prescribed qualification for becoming a trustee in the constitution of each trust. If a person qualifies the eligibility, then he can become trustee of that trust. The mode of appointment of trustee is also prescribed in the constitution. Therefore, any person willing to become a trustee must be aware of the constitution of trust, eligibility for becoming a trustee and the mode of appointment.

Q. 16. If trustees are not working properly, whom should be approached?

If trustees are found not to be working property as per the constitution of the trust, then any person having an interest can approach the competent authority i.e. Deputy or Asstt. Charity Commissioner for redressal under various provisions of B.P.T. Act, 1950.What is the difference between"Trust" and "Foundation" ?Simply put, a 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 benifit of another, or of another and the owner. It may also be general character or of a private and individual character and it may be temproary or permanent character. whereas, Foundation may be an organization or an establishment funded by way of gifts of money for helping others for paying for research. Collegesetc. All exempt organizations submit annual filings to the IRS; public foundations file Form___, like other public charities. These filings are public documents and have valuable information about an organizations finances, board members, and key employees.In addition, private foundations must list all grants paid in that year. Some public foundations will list their grants voluntarily. Difference between Trust and Society in India

Basis of DifferenceTrustSociety

Statute/LegislationPrivate trusts are governed by Indian Trust Act, 1882. Public charitable trusts do not have a national level governing law.Societies Registration Act, 1860

Minimum number of membersTwoSeven

Geographical area of activitiesAll India (no need to mention this in the Trust Deed)A separate registration for All India level is required (8 members from different states required)

Nature of controlOne man control, i.e. SettlerDemocratic system. Decisions are made by voting. Power struggle may ensue.

AmendmentsCan easily be done via a supplementary trust deedRelatively more difficult. Both Memorandum of Association and Rules and Regulations need to be changed

NamesEasily availableA bit difficult to get the desired name

Bank a/c operationControlled by one person,SettlerTwo persons, either President or Secretary and Treasurer

Office holders tenureTrustees generally hold office for the whole lifeMembers hold office for a period of time and may stand for re-election

Winding-upTrust is generally irrevocable, Cannot be wound-up.Can be wound up if 3/5th of the members so desire

Family membersCan become trusteesRegistrar objects on family members becoming part of the Governing Body

Governed byBoard of TrusteesGoverning Body

Main documents1. Trust Deed1. Memorandum Of Association2. Rules and Regulation

ObjectivesCan be generalHave to be specific

Differencial factorsTrust SocietyNonprofit Company

Basic Document Trust Deed - which contains objects of the trust (bye-law)Memorandum of AssociationArticles of Association with rules & regulations.Memorandum of Association Articles of Association

Formation Very Easy Simple Little Hard

JurisdictionDeputy Registrar / Charity CommisionerRegistrar of Societies - For Maharastra Charity CommissionerRegistrar of Comapnies

Legislation / StatuteRelavent state Trust Act - Bompany Public Trust Act 1950 Societies Registration Act 1860Indian Companies Act 1956

ObjectsSocial benefits & CharitableLiterary, Charitable, Scientific and resource oriented Nonprofit Activities

Re-ammendment or Modification of Objects Alteration can be undertaken only by the Founder or settler.If the founder deceased alteration of objects is impossibleEasy Legal ProceduresComplicated Legal Procedures

Required Members Minimum = 2 Maximum = No limit Minimum = 7 Maximum = No limit Minimum = 7 Maximum = No limit

Registration As Trust with the Registrar.As Society with Society Registrar - Both as a society and a trust in some states like Maharastra.As per Companies Act under Section 25

Stamp Duty4% of Trust property Value will be executed in non judicial stamp paper with the registrarNo stamp paper required for Memorandum of association, and rules and regulations.No Stamp paper required for Memorandum of association and articles of association.

NameVery easy to chooseVery easy to choosePrior approval required from Registrar of Companies.

Management BoardTrusteesGoverning BodyBoard of Directors & Management committee

Succession in ManagementBy ElectionBy ElectionBy Appointment

MeetingsNo provisionsAnnual Meeting As per Law. Governing Body meeting as per the rules of Society.Quite Extensive as per the provision of Company Law

Legal StatusLimited Legal StatusLimited Legal StatusFull Legal Status

Statutory RegulationsNominalLimited Maturable - Exhaustive

Membership Transfer Impossible Impossible Free or Control as per desire.

Member AdmissionNot applicableGoverning Body ControlGeneral Body or Board Control through issue of Capital.

Dissolution or Take over by State PossiblePossibleVery risky and difficult

Payment to MembersAs notified in Trust deedNot restrictedAs approved by Company & State.

COMPARATIVE ANALYSIS:TRUSTSOCIETYCOMPANY NONPROFIT1.Formation One week One month 3-6 months2.Formation Costs Rs. 1,000 - 5,000 Rs. 3,000 - 10,000 Rs. 30,000 - 75,0003.Annual Costs Rs. 5,000 + Rs. 10,000 + Rs. 30,000 +4.Members Two + Seven + Two +5.Foreigners as members / Directors No restriction Not prohibited by law Allowed6.Payments todirectors AllowedAllowed in mostAllowedstates 7.Control Easy Difficult Easy8.Public Transparency Low Moderate High9.Modifications Very difficult Moderate difficulty Moderate difficulty10.Area of Operation Most of India Usually restricted to state boundariesAll of India11.Tax and FCRA approvals Eligible Eligible Eligible12.Governing Law Common law in Societies Registration Companies Act,2013 or equivalent state law13.Regulation Very little Moderate High14.Paperwork Very little Moderate HighPenalties under governing law None in most states Few Large numberCan a Trustee Take Salary from Trust Fund?People often ask if a trustee can take salary/compensation from the trust fund. Find out what the relevant laws (Bombay Public Trusts Act 1950 and section 13 of Income Tax Act) have to say about it.Is it possible for a trustee to take salary / compensation / remuneration from the Trust Fund? This is one of the most common questions asked by people in India who want to setup a public charitable trust. Running a trust is not an easy job and it may require a trustee to invest significant amount of time and energy. And some people feel that they should be get the compensation from the Trust Fund for the work they do fro the Trust. Most lawyers and CAs would straightway tell you that it is not allowed for a trustee to take any benefits (in the name of trustee salary, trustee remuneration or trustee compensation) from the Trust Funds. This however depends on what constitutes a benefit.The first thing you must understand is that trusts are of two types: private and public charitable trusts.Indian Trusts Act 1882 covers only private trusts and it specifically excludes public charitable trusts from its ambit. Most people think that the Indian Trusts Act 1882 applies to public charitable trusts as well. But that is wrong. In some states, public charitable trusts are governed by Bombay Public Trusts Act 1950. But in most states of India, there is no Act for governing charitable trusts.Both Bombay Public Trusts Act 1950 and Section 13 of Income Tax Act state that the trustees can draw a reasonable compensation from the trust fund for the services they provide to the trust. Please note that being a trustee itself is not considered a service. So, lets try to understand what could be a defined as a service.Lets assume, in a charitable trust, one of the trustees is a qualified Chartered Accountant and if he is managing the trusts accounts. In such a case he is eligible for a reasonable compensation for his CA work because his work is saving the Trust from paying another CAs fee.Reasonable means that the compensation must not be higher than the prevailing average market rate. I would suggest that such a compensation should actually be a notch below the average (after all youre supposed to be doing charitable work -so its better to put the least possible burden on Trust Funds)If one or more trustees are taking unreasonable benefits from the Trust Fund the Income Tax Department may refuse/revoke the allotment of tax exemptions under section 12A and 80G. If that happens all the donations/earnings acquired by the Trust shall become taxable.For more information, you should contact the Commissioner of Income Tax (Exemptions) who has jurisdiction over your area.TAX EXEMPTIONWhat is section 12-A of Income Tax Act. ?Income of an organization is exempted if NGO has 12-A registration. All income shall not be taxable after 12-A registration. This is one time registration.What Is section 80-G of Income Tax Act. ?If an organization has obtained certification under section 80-G of Income Tax Act then donors of that NGO can claim exemption from Income Tax. This is not one time registration. This needs to get renewed after validity period.Q. When an organization can apply for registration under section 12A and BUG of Income Tax Act?A. Application for registration under section 12A and 80G can be applied just after registration of the NGO.Where to apply for registration under section 12A and 80G of Income Tax Act?Application for registration under section 12A and 8OG can be applied to the Commissioner of Income-tax (Exemption) having jurisdiction over the institution.Can both the applicatlons under section 12A and 80G of Income Tax Act be applied together?Yes ! Both applications can be applied together or it can also be applied separately also. If some organization is willing to apply both applications separately, then application for registration u/s 12A will be applied first. Getting 12A registration is must for applying application for registrationu/s 80G of Income Tax Act.Generally what is the timeline for getting registration under section 12A and 80G of Income Tax Act?If application for registration under section 12A and 80G will be applied through NGO Factory, it should take 3 to 4 months.What is the procedure for getting registration under section 12A and 80G of Income Tax Act?Step-1: Dully filled-in application will be submitted to the exemption section of the lncome Tax Department.Step-2: NGO will receive notice for clarifications from Income Tax Department in 2-3 months after applying.Step-3: Reply of notice will be submitted by the consultant along with all relevant desired documents to the Income Tax Departments.Step-4: Consultant will personally visit the Income Tax Departments to follow-up the case on behalf of the applicant organization.Step-5: Exemption Certificates will be issued.What is the validity period of the registration under section 12A and 80G of Income Tax Act?12A registration : Lifetime validity80G registration : 1 to 3 years validityWhat application forms are being used for applying for registration under section 12A and 80G of Income Tax Act?12A registration : Form 10A80G registration: Form 10G (For New Application and Renewal both)What are the conditions on Section 80G?There are few conditions to be fulfilled under the section 80G: The NGO should not have any income which are not exempted, such as business income. lf, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business. The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable. The NGO is not working for the benefit of particular religious community or caste. The NGO maintains regular accounts of its receipts & expenditures. The NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.What is Tax Exemption limit on donations?There is a limit on how much money can be exempted from the Income Tax. If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G. The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated. The ultimate benefit will depend on the tax rates applicable to the assessee. Let us take an illustration. Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs.1,00,000/- to a NGO called Adarsh. The total income for the year 2003-2004 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 2,00,000/-. Now assuming that the rates are 30% for the individuals and 40% for the Companies without any minimum exemption limit.Documents reguired for registration u/s 12A AND 80G:1. Dully filled in Form - 10A for registration u/s 12A registration;2. Dully filled in Form - 10G for registration u/s 80G registration;3. Registration Certificate and MOA /Trust Deed (two copies - self attested by NGO head);4. NOC from Landlord (where registered office is situated);5. Copy of PAN card of NGO;6. Electricity Bill / House tax Receipt /Water Bill (photocopy);7. Evidence of welfare activities carried out & Progress Report since inception or last 3 years;8. Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3years;9. List of donors along with their address and PAN;10. List of governing body I board of trustees members with their contact details;11. Original RC and MOA /Trust Deed for verification;12. Authority letter in favor of NGO Factory;13. Any other document I affidavit / undertaking I information asked by the Income Tax department Generally what is the timeline for getting registration under section 12A and 80G of Income Tax Act?If application for registration under section 12A and 80G will be applied through NGO Factory, it should take 3 to 4 months.What is the procedure for getting registration under section 12A and 80G of Income Tax Act?Step-1:Dully filled-in application will be submitted to the exemption section of the lncome Tax Department.Step-2:NGO will receive notice for clarifications from Income Tax Department in 2-3 months after applying.Step-3:Reply of notice will be submitted by the consultant along with all relevant desired documents to the Income Tax Departments.Step-4:Consultant will personally visit the Income Tax Departments to follow-up the case on behalf of the applicant organization.Step-5:Exemption Certificates will be issued.What is the validity period of the registration under section 12A and 80G of Income Tax Act?12A & 80G registration : Lifetime validityWhat application forms are being used for applying for registration under section 12A and 80G of Income Tax Act?12A registration : Form 10A80G registration: Form 10GWhat are the conditions on Section 80G?There are few conditions to be fulfilled under the section 80G: The NGO should not have any income which are not exempted, such as business income. lf, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business. The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable. The NGO is not working for the benefit of particular religious community or caste. The NGO maintains regular accounts of its receipts & expenditures. The NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.What is Tax Exemption limit on donations?There is a limit on how much money can be exempted from the Income Tax. If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G. The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated. The ultimate benefit will depend on the tax rates applicable to the assessee.Documents reguired for registration u/s 12A AND 80G:1. Dully filled in Form - 10A for registration u/s 12A registration;2. Dully filled in Form - 10G for registration u/s 80G registration;3. Registration Certificate and MOA /Trust Deed (two copies - self attested by NGO head);4. NOC from Landlord (where registered office is situated);5. Copy of PAN card of NGO;6. Electricity Bill / House tax Receipt /Water Bill (photocopy);7. Evidence of welfare activities carried out & Progress Report since inception or last 3 years;8. Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3 years;9. List of donors along with their address and PAN;10. List of governing body I board of trustees members with their contact details;11. Original RC and MOA /Trust Deed for verification;12. Authority letter in favor of NGO Factory;13. Any other document I affidavit / undertaking I information asked by the Income Tax department.