What is  NGO Trust? Types of trust, its work and registration process

What is Trust? Types of trust, its work and registration process

Trust which Hindi meaning is bharosa/vishwas. Trust is a very important part of our society. There are many kinds of activities going on through trust. Every state has its own trust act but wherever there is no specific act then Trust act 1882 comes into force. This had come into force on 1st March 1882. Till today it is in existence through article 372 of the Indian constitution. IT provision under sec 11,12, and 13 we have the provision of trust. So I would like to elaborate on different type of trust and its work and its registration process. Broadly there is two kinds of Trust.

1. Private Trust
2. Public trust

Private Trust

Property/assets are given to the trust by an individual and it is managed by the trust and whatever income happens in the trust gets to pass on to the designated individual. In this trust, the personal beneficiary is limited to author discretion. In other words, we can say if the purpose is related to the creator then this trust will be called private trust. In this trust, people will be taxed as an individual tax rate provided none of the beneficiaries having taxable income. In this trust, the maximum marginal rate will be applied If any of the beneficiaries having taxable income.

Public Trust

If the creator has given his property (Movable immovable) to the trustee for a particular purpose and if the purpose is related to general public then this trust will be called public trust.In this trust people will be taxed as an individual subject to trust has spent 85% of the income. Less than 85% of spend will attract tax as per the individual tax slab. Here it will be pertinent to mention that every trust is supposed to spend 85% of income in charitable activity for getting the benefit under the income tax act.in this act there is also a provision that if a trust has planned huge expenditure and this is not possible from one-year donation/income then the income tax act says that trust can accumulate the donation for up to 5 years. Within five years a particular trust will have to spend the amount for getting the IT rebate. In this scenario 85 % spend every year rule will not be applicable. If trust has done any violation then income tax will charge a maximum marginal rate that is 35.53 percent. Once you registered as a public charitable trust you will get the benefit of 80G. Public charitable trust rules and regulations are very liberal.

Broadly two kinds of public trust is there:

1. Religious trust: A Religious trust caters to the need or purpose of a particular religion. Like the trust for a Mandir or Masjid
2. Charitable trust: Charitable trust does charitable work for the general public. It doesn't differentiate the general public by cast and creed or religion. 

Essentials of a valid trust:

1. Author: A author/creator/donor/settler is a person who is creating a trust 
2. Trustee: Person who has been appointed in the trust by the author.
3. Beneficiary (related or unrelated): This defines the purpose of the trust. An individual or group of individuals for whom the trust has been formed.
4. Property (movable or immovable): The property which has been donated to the trust for fulfilling the particular purpose.
5. Trust deed: A registered document basis on which the whole trust will function.

Purpose of which trust can be created.

Trust can be created for lawful purposes. The Purpose will be deemed as lawful unless

1. For bidden by law/Prohibited by law
2. Defeats the provision of law
3.  Fraudulent or cheating in nature
4. Against public policy /immoral /Against the society
5. Injury to other or his property (infringement of rights of other) /violation of rights of others

Registration of a trust:

1. Choose the appropriate name of the trust and also make sure that the chosen name doesn’t violate any kind of law.
2. Determine the Author/creator/settler /Donor. Minimum of two trustees we need for registering the trust.
3. Trust deed that will contain the name of the trust, author/settler name. Trustee name, the objective of the trust (beneficiary detail), registered office address. The details of the general body.by- laws.Area of operation of a trust.
4. Memorandum of association. This will contain the name, address, and occupation of trustees. This will also clearly define the meeting calling process/duration, membership, donation, General body, appointment/removal of the trustees. What are the Rights and duties of the trustees? Details of the property which is going to be donated to the trust

We need at least two trustees for registering the trust. For trust registration, we can apply at the commissioner or registrar`s office.

Documents required for registering the trust.

1. Trust deed on stamp paper( value of stamp varies from state to state)
2. Self-attested KYC document of the author and two photographs of the author
3. Self-attested KYC document of the author and two photographs of all the trustees
4. Proof of the registered office address. This can be an electricity bill, water bill. In the case of a rented office, you need to submit the consent letter of a landowner with his identity proof.

So till now we have come to know that type of trust how it works and what is the registration process of the trust. But there are other aspects of the trust as well.

Limitation under trust act:

Suppose someone has created the trust for two purposes and at the time of the creation of the trust both purposes were lawful. but after some time one of the purposes becomes unlawful due to the policy changes of the government. Now the bigger question is Do we need to close that trust? As per the law if the second purpose is dependent on the first purpose and if the first purpose is unlawful now then we will have to close the trust. If we can separate unlawful purpose from the other then trust will continue as usual. One of the objects of a trust declared unlawful shall continue or be dissolved is dependent on the objects of the trust. If the lawful object can be separated from unlawful objects and can be carried in isolation then trust shall be valid for the lawful object otherwise shall stand void.

Tax exemption for a public charitable trust

After registration, a trust can apply for income tax exemption. For availing of the tax exemption under income tax trust needs to obtain 12A and 80G certificates from the income tax.

Donation with specific direction

Sec 11(1) (d) says that if a donor has given a trust donation with a specific direction then trust will have to spend that donation for that particular specific direction. For example, if donor A has donated with an instruction to construct a particular wall then trust will have to construct a wall from that donation. Also, this will not be the income of the trust because it has come with a specific direction.

Donation without specific direction

In this category, you need to keep 15% and the rest you will have to spend. in the utilization of fund, you can clear your old liability with current year donation as well.

Cancelation of the registration of a trust

Income tax also may cancel the registration of trust after giving the opportunity of being heard. They will ask for an explanation. Income tax department l fix the date and time and trust people need to go there and submit the explanation.

Interested person

We can call a person an interested person for that trust If he has donated more than 50 thousand rupees to that particular trust.

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