Trust Registration Hosh February 12, 2025

Trust Registration in India

A Trust is a legal arrangement where the owner (settlor) transfers property or assets to a trustee, who holds and manages them for the benefit of a third party (beneficiaries). Trusts in India are regulated under the Indian Trust Act, 1882 and must be registered under this Act.

Nowadays, trust registration is an online process completed through the execution of a Trust Deed.

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What is a Trust?

A Trust is a legal entity where a settlor (creator of the trust) transfers ownership of property to a trustee, with instructions to manage it for beneficiaries.

This structure ensures that the assets are used for a specific purpose, often charitable, religious, or private wealth management.

Advantages of Trust Registration

  • Engagement in Charitable Activities – Enables organized philanthropy for causes like education, healthcare, and welfare.
  • Tax Exemptions – Registered trusts can avail tax benefits under Section 12AA and 80G of the Income Tax Act.
  • Benefiting the Underprivileged – Provides direct assistance to people in need through structured initiatives.
  • Legal Compliance – Ensures recognition under Indian law, making operations smoother.
  • Preservation of Family Wealth – Used for estate planning and inheritance management.
  • Avoiding Court Disputes – Helps prevent legal conflicts over asset distribution.
  • Facilitates Immigration & Emigration – Trusts can hold and manage assets across borders for expatriates.
  • Protection Against Forced Heirship Laws – Offers flexibility in asset distribution, avoiding rigid inheritance laws.
  • Tax Mitigation – Helps optimize tax liabilities through structured financial planning.
  • Efficient Asset Management – Provides a clear framework for managing and utilizing assets effectively.

Parties Involved in the Trust Registration Process

  • Trustor (Settlor) – The person who creates the trust and transfers assets or property to it.
  • Trustee – The individual(s) or entity responsible for managing the trust assets as per the terms of the trust deed.
  • Beneficiary – The person(s) or organization(s) who benefit from the trust.

Types of Trusts in India

1. Private Trust

  • Created for the benefit of specific individuals or groups.
  • Governed by the Indian Trusts Act, 1882.
  • Can be created during the settlor’s lifetime (inter vivos) or through a will.

2. Public Trust

  • Formed for the benefit of the general public.
  • Can be charitable or religious in nature.
  • Governed by various laws such as:
  • Charitable and Religious Trust Act, 1920
  • Religious Endowments Act, 1863
  • Charitable Endowments Act, 1890
  • Bombay Public Trust Act, 1950
  • Not regulated under the Indian Trusts Act, 1882 (applicable only to Private Trusts).

3. Public-Cum-Private Trust

  • Serves both public welfare and private beneficiaries.
  • A portion of its income is directed towards public purposes, while some benefits go to private individuals.

Classification Based on Purpose & Function

1. Private Trust

Created for specific individuals as beneficiaries.

2. Public Trust

  • Created for the general public or a defined group.
  • Typically associated with charity, education, or healthcare.

3. Simple Trust

Trustee has no active role other than holding the trust property.

4. Special Trust

Trustee actively manages the trust according to the settlor’s instructions.

5. Express Trust

  • Created explicitly by the settlor during their lifetime or via a will.
  • Documented through a trust deed or testamentary trust.

6. Implied Trust

Arises when legal formalities for an Express Trust are missing, but there is intent to create a trust.

7. Investment-Based Trusts

Used for mutual funds, venture capital funds, or other investment purposes. Regulated by the Securities and Exchange Board of India (SEBI).

Documents Required for Trust Registration in India

To register a trust, the following documents are required:

1. Identity Proof for Trustor & Trustees

  • Aadhaar Card
  • Voter ID
  • Passport
  • Driving License

2. Address Proof of Registered Office

  • Property ownership document or utility bills (Telephone, Water, Electricity Bill)
  • If rented, a No Objection Certificate (NOC) from the owner is mandatory.

3. Trust Deed Details

  • Objective of the Trust
  • Self-attested ID and address proof of the trustee and settlor
  • Trust Deed on appropriate stamp value
  • PAN Card of trustee and settlor
  • Passport-sized photographs of trustee and settlor

What is Included in a Trust Deed?

A Trust Deed contains:

  • Total number of trustees
  • Registered address of the trust
  • Proposed name of the trust
  • Rules and regulations of the trust
  • Presence of settlor and two witnesses at the time of registration

Steps for Trust Registration in India

1. Choose an Appropriate Name

The name should comply with the Emblems and Names Act, 1950 and should not be restricted.

2. Decide the Settlor & Trustees

  • No specific limit on the number of settlors.
  • At least two trustees are required.
  • The settlor cannot be a trustee in most cases..

3. Draft the Trust Deed & Memorandum of Association (MOA)

  • Trust Deed serves as legal proof of trust formation and defines the operational rules.
  • Memorandum of Association (MOA) specifies the objectives and defines the relationship between the trustor and trustees.

4. Prepare the Trust Deed on Stamp Paper

  • The stamp duty value depends on state regulations and the total value of the trust property.
  • The applicant must pay Rs. 1,100 as fees:
  • Rs. 100 – Trust registration fee
  • Rs. 1,000 – Charge for keeping a certified copy of the Trust Deed with the Sub-Registrar.

5. Submit Trust Deed to the Registrar

  • Submit the original Trust Deed and required documents to the local registrar.
  • The settlor and two witnesses must be physically present with their original and self-attested ID proofs.

6. Obtain Certificate of Registration

After verification, the registrar issues the Registration Certificate within 7 working days.

Penalties for Non-Compliance in Trust Registration

Trusts that fail to comply with legal and tax obligations may face the following penalties:

1. Civil and Criminal Penalties

  • Breach of trust can attract legal action under Sections 405 to 409 of the Indian Penal Code (IPC), 1860.
  • Depending on the severity, both civil and criminal penalties may be imposed on the beneficiary or trustee.

2. Non-Compliance with Tax Deduction Account Number (TAN) Rules

  • Trusts must apply for a Tax Deduction Account Number (TAN) using Form 49B as per Income Tax Rules.
  • TAN must be mentioned in:
  • Payment challans under Section 200
  • TDS certificates
  • Returns filed under Sections 206, 206A, and 206B
  • Penalty: ₹10,000 as per Section 272BB for non-compliance.

3. Failure to File Income Tax Returns (ITR)

  • If a trust fails to file its Income Tax Return (ITR), it may face penalties under the Income Tax Act.
  • If the trust does not attach a TDS certificate due to the payer’s failure to provide it, the ITR will not be defective, but the certificate must be submitted within two years from the assessment year’s end.

Impact of Section 12AB on Trust Establishments

  • Trusts must re-register under Section 12AB to continue availing tax exemptions under Sections 10 and 11.
  • This applies to trusts previously registered under:
  • Section 12A
  • Section 12AA
  • Section 10(23C)
  • Section 80G

Is It Mandatory to E-File ITR for a Trust?

  • Trusts must file ITR electronically, either:
  • With or without a digital signature, or
  • Using an Electronic Verification Code (EVC).
  • If the trust’s accounts require an audit under Section 44AB, ITR must be filed electronically

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