โ1. Introduction to Trust Formation
โA Trust is a legal obligation annexed to the ownership of property, arising out of a confidence reposed in and accepted by the owner (Settlor), for the benefit of another (Beneficiary). In India, trusts are primarily governed by:
- โIndian Trusts Act, 1882: For Private Trusts (Family/Personal).
- โState-Specific Public Trust Acts: For Charitable/Religious Public Trusts (e.g., Bombay Public Trusts Act, 1950).
โWhy Form a Trust?
- โAsset Protection: Safeguarding wealth from future creditors or legal disputes.
- โCharitable Mission: To provide education, medical relief, or social welfare.
- โTax Planning: Leveraging exemptions under Section 12A and 80G.
- โSuccession Planning: Ensuring a smooth transfer of assets to the next generation without the need for a Will or Probate.
โ2. Step-by-Step Formation Process
โThe formation of a trust involves several critical legal stages that require precision in documentation.
โPhase 1: Planning and Naming
- โName Selection: The name must be unique and not infringe on existing trademarks. It should ideally reflect the mission (e.g., “Achary Education Trust”).
- โIdentifying Parties:
- โThe Settlor (Author): The person who transfers the property to the trust.
- โThe Trustees: The persons responsible for managing the trust. Minimum of two are required.
- โThe Beneficiaries: The individuals or group who will benefit from the trust assets.
โPhase 2: Drafting the Trust Deed
โThe Trust Deed is the constitution of the entity. It must include:
- โTrust Property: Clearly defined movable or immovable property being settled.
- โObjectives: Detailed list of activities the trust will undertake.
- โRules & Regulations: Procedures for appointing or removing trustees, quorum for meetings, and winding-up clauses.
โPhase 3: Execution and Registration
- โStamp Duty: The deed must be printed on non-judicial stamp paper. The value varies by state (West Bengal, Delhi, etc.).
- โThe Sub-Registrar Office: The Settlor and at least two Trustees must personally appear before the Sub-Registrar of the area where the registered office is located.
- โWitnesses: Two independent witnesses with valid ID proofs are mandatory.
- โIssuance of Certificate: Once verified, the Registrar issues the Trust Registration Certificate.
โ3. Post-Registration Mandatory Formalities
โOnce the trust is legally registered, it must establish its financial identity.
- โPAN Card Application: A Trust is a separate “Person” under the Income Tax Act. Form 49A must be filed using the Trust Deed as the base document.
- โTAN Registration: Necessary if the trust intends to employ staff or pay professional fees exceeding TDS thresholds.
- โBank Account Opening: A dedicated current account in the name of the Trust. Resolution from the Board of Trustees is required to authorize signatories.
โ4. Key Tax Exemptions: 12A and 80G
โFor Charitable Trusts, registration is just the beginning. To avoid paying 30% flat tax on donations, you must apply for tax-exempt status.
โSection 12A (now 12AB) Registration
โThis registration grants the trust a “charitable” status for tax purposes. It ensures that the trustโs surplus income is not taxed, provided at least 85% of the income is applied toward the trust’s objectives.
- โValidity: Generally granted for 5 years and requires renewal.
โSection 80G Registration
โThis is the “Donation Magnet.” It allows donors to claim a 50% tax deduction on the amount they donate to your trust.
- โRequirement: 12A must be applied for or obtained before or along with 80G.
โ5. Annual Compliance Calendar
โFailure to comply results in heavy penalties and the potential loss of tax-exempt status.
| Compliance Type | Form/Document | Due Date |
|---|---|---|
| Income Tax Return | ITR-7 | 31st July (Non-audit) / 31st October (Audit) |
| Audit Report | Form 10B / 10BB | 30th September |
| Donation Statement | Form 10BD | 31st May (Annually) |
| TDS Returns | Form 24Q / 26Q | Quarterly |
| GST Returns | GSTR-1 / 3B | Monthly (If turnover > threshold) |
6. Advanced Compliance: FCRA
โIf your trust plans to receive funds from foreign individuals or organizations, Foreign Contribution (Regulation) Act (FCRA) registration is mandatory.
- โEligibility: The trust must be active for at least 3 years and have spent โน15 Lakhs on its core activities.
- โBank Account: Must open a designated “FCRA Account” specifically at the State Bank of India (SBI), New Delhi Main Branch.
โ7. The PC Achary / GST Suvidha Center Edge
โWhile a Trust formation sounds complex, Pcachary.n simplifies the entire lifecycle.
โWhy Choose Our Center?
- โSingle-Window Solution: From drafting the deed to filing the 10th-year audit, we handle it all.
- โNominal Rates: As a GST Suvidha Center (Code WB 093), we provide professional CA-level services at rates affordable for small-scale founders.
- โExpert Backend: Supported by a 170+ member backend team, ensuring that your legal documents are error-free.
- โTech-Enabled: We bridge the gap for non-tech-savvy founders by using our advanced portal to manage digital signatures and online filings.
โ8. Disclaimer and Legal Integrity
โNote: Trust laws vary significantly between states (e.g., a Trust in West Bengal may have different registration fee structures than one in Delhi). All services provided through Pcachary.n are governed by the legal framework of the Indian Trusts Act and the Income Tax Act. Clients are advised to maintain transparent records of all donations and expenditures to ensure continued compliance.
โ9. Conclusion: Build Your Legacy Today
โA Trust is more than just a legal entity; it is a vehicle for your vision. Whether you are protecting your family’s future or building a school for the underprivileged, the foundation must be legally sound.
โContact Our Experts:
- โCenter Head: Purna Chandra Achary
- โCode: GSC WB093
- โEmail: connect@pcachary.in
- โWhatsApp: +91-9836812177
