Types of Trusts Under Indian Law
A trust is a legal arrangement where the author of the trust transfers property to trustees, who hold and manage it for the benefit of specified beneficiaries. Under the Indian Trusts Act, 1882, trusts are classified as private trusts, which benefit specific individuals, and public or charitable trusts, which benefit the public at large or a section of it. Most organisations seeking tax exemption register as public charitable trusts.
For founders in Asansol, the choice between a trust, a society, and a Section 8 company depends on the intended activities, governance preferences, and funding sources. A trust is simpler to set up and offers flexible management by a small number of trustees, while a society requires a larger managing committee and a Section 8 company offers corporate-style governance. Trusts are particularly popular for family-run charitable initiatives and religious endowments.
A public charitable trust can be created for purposes recognised as charitable, such as relief of poverty, education, medical relief, advancement of religion, and other public utility purposes. The objects of the trust must be clearly defined in the trust deed, because the Income Tax Department and the charity commissioner examine these objects when granting exemptions. Vague or non-charitable objects lead to rejection of the exemption application.
Drafting the Trust Deed
The trust deed is the founding document of the trust and must be drafted with precision. It should state the name of the trust, the registered office, the names and details of the author and the trustees, the objects and purposes, the corpus or initial property settled, the powers and duties of the trustees, the rules for appointment and removal of trustees, and the manner of utilising trust income. Every clause must align with the applicable law to avoid future disputes.
For trusts to be registered in Asansol, the deed must be printed on non-judicial stamp paper of the value prescribed by the West Bengal Stamp Act, which typically depends on the value of the trust property and the nature of the trust. The deed must be signed by the author and trustees in the presence of two witnesses. The objects clause should expressly limit activities to charitable purposes to qualify for tax exemption, and an irrevocability clause ensures the trust property cannot be diverted to non-charitable use.
Experienced drafting prevents the most common problems, such as overlapping trustee powers, ambiguous beneficiary definitions, and absence of a dissolution clause specifying that on dissolution the trust assets will transfer to another charitable trust. A poorly drafted deed can lead to rejection at registration and can also disqualify the trust from 12A and 80G benefits. Engaging a lawyer ensures the deed meets all statutory and tax requirements from the outset.
Stamp Duty and Registration with the Sub-Registrar
Once the trust deed is drafted, it must be executed on non-judicial stamp paper of the appropriate value and then registered with the Sub-Registrar of Assurances having jurisdiction over the registered office of the trust. In Asansol, this is the office of the Sub-Registrar within whose territorial limits the trust office is located. Registration under Section 18 of the Registration Act, 1908, gives the trust deed legal validity and public recognition.
For registration, the parties must present the deed along with the prescribed registration fee, identity proofs and photographs of the trustees, the address proof of the registered office, and the witnesses. The Sub-Registrar verifies the documents, records the presentation, and after due scrutiny registers the deed, entering it in the register and returning a certified copy. The registered deed is the primary evidence of the existence and terms of the trust.
In West Bengal, certain public charitable trusts may also need to be registered with the office of the Registrar of Societies or under the relevant state public trust law, depending on the nature of the activities. It is important to confirm the local requirement, because compliance with state law is separate from and additional to the registration under the Registration Act. A lawyer familiar with the Asansol registry can guide the founders through both layers of compliance.
Obtaining PAN, TAN and Bank Account
After registration of the trust deed, the trust must obtain a Permanent Account Number (PAN) from the Income Tax Department, because the trust is treated as a separate taxable entity. The application is filed online through the NSDL or UTIITSL portal using the registered trust deed and the trustees details. A PAN is essential for all financial transactions, filing returns, and applying for tax exemptions.
If the trust will have employees, it must also obtain a Tax Deduction and Collection Account Number (TAN) for deducting tax at source on salaries and other payments. With the PAN and the certified copy of the trust deed, the trustees can open a bank account in the name of the trust. The bank requires the resolution authorising the trustees to operate the account, KYC documents, and the registered deed.
Maintaining separate financial records and a dedicated bank account is not merely good practice but a statutory requirement for trusts claiming tax exemption. The Income Tax Department examines whether the trust income has been applied to charitable purposes, and commingled funds or personal transactions can lead to denial of exemption. For Asansol trusts, establishing clean accounts from day one is critical.
Tax Exemption Under Sections 12A and 80G
The most significant financial benefit of registering a charitable trust is the tax exemption available under Section 12A of the Income Tax Act, which exempts the income of the trust from tax provided it is applied to charitable purposes. Under the current regime, registration under Section 12AB is granted provisionally for three years and then made regular, subject to the trust satisfying the conditions of application of income and maintenance of records.
Section 80G provides a deduction to donors who contribute to the trust, encouraging philanthropy. To obtain 80G certification, the trust must apply separately and demonstrate that its objects are charitable, its funds are applied only to those objects, and its accounts are audited annually. The 80G approval is highly valued by trusts in Asansol because it makes donations attractive to individuals and corporations seeking tax relief.
Both registrations require a detailed application, the trust deed, audited financials, and an undertaking to comply with the conditions. The Principal Commissioner of Income Tax examines the application and may conduct inquiries. Maintaining at least 85 percent application of income, keeping proper books, and filing returns annually are continuing obligations. Failure to comply can result in cancellation of the registration and taxation of accumulated income.
Ongoing Compliance and Annual Filings
A registered trust is subject to continuing compliance obligations. It must get its accounts audited annually under Section 12A(4)(b) if its income exceeds the prescribed threshold, and file the audit report in Form 10B. The trust must also file its return of income within the due date, even if its income is exempt, because filing is mandatory for trusts claiming exemption.
If the trust receives foreign contributions, it must register under the Foreign Contribution Regulation Act (FCRA) before accepting such donations. The FCRA registration requires a clean track record of three years of functioning and a specified level of activity. Compliance with FCRA is stringent, with separate bank accounts, annual returns, and restrictions on the use of funds.
Trustees must also hold periodic meetings, maintain minutes, file any required state returns, and ensure that the trust does not engage in activities outside its objects. For trusts in Asansol, regular legal review helps avoid lapses that can jeopardise the tax-exempt status. A lawyer can provide annual compliance support so that the founders can focus on the charitable work.
How Advocate Anurag Gupta Registers Trusts in Asansol
Advocate Anurag Gupta assists founders in Asansol with end-to-end trust registration. He begins by understanding the charitable purpose and advising on the most suitable structure, whether a trust, a society, or a Section 8 company. He then drafts a comprehensive trust deed with clear objects, proper trustee powers, and all clauses necessary for tax exemption.
He arranges the stamp paper, coordinates with the Sub-Registrar for registration, and ensures all documents and witnesses are in order. After registration, he helps obtain the PAN and TAN, and prepares the applications for 12AB and 80G registration with the Income Tax Department, including the audited financials and undertakings. Where foreign funding is contemplated, he advises on FCRA registration.
He also offers annual compliance support, ensuring audit reports, returns, and minutes are filed on time so that the tax-exempt status is never at risk. For a free consultation about setting up or running a trust in Asansol, call Advocate Anurag Gupta to discuss your charitable vision and the legal pathway to realise it.