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Author: CA. Meenal Vaid Lipponsa

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finance

Basics On Trusts

INTRODUCTION

“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.”

Trusts are formed for charitable purposes which include Relief to the poor, Education, Medical relief, Preservation of environment and Preservation of monuments or places or objects of artistic historic interest and the advancement of any other object of general public utility

Provided that the advancement of any other object of a general public utility shall not be a charitable purpose if it involves the carrying on of any activity like trade, commerce or business or any activity of rendering any service concerning any trade, commerce or business, for a cess or fee or any other consideration of the nature of cess or application or retention of the income from such activity,

Unless: – 1. Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility;

  1. The aggregate received from such activity activities during the previous year does not exceed 20% of the total receipts are the trust institution undertaking search activity activities of that previous year.

ELIGIBILITY FOR CREATING A TRUST

Any Individual who are competent to contract can form a trust. The trusts can also be created by HUF’s, an association of persons, a company and guardian on behalf of a minor, after seeking permission from the principal court of original jurisdiction.

PROCEDURE FOR CREATING A TRUST

The trusts can be formed either as a society or as a section 8 company. Usually, the Trust Deed is the document that establishes the registration of the Trust.

Parties to the TRUST

AUTHOR – Person creating the Trusts

TRUSTEE – Members of the Trust

BENEFICIARY – The persons who will benefit from the trust.

The contents of the trust deed are as follows

  • Name of the Trust
  • Place of office of the Trust
  • Objects of the Trust
  • Number of Trustees
  • Term of the Trustees
  • Trust Management
  • Appointment or Resignation or Termination of Trustees
  • Power, Function and Duties of the Trustees
  • Application of Trust Property
  • Other important matters.

The above-mentioned lists are not exhaustive.

Once the trust deed is executed it should be registered with the registrar.

Then the trust should apply for PAN card and Bank account in the name of the Trust.

REGISTERATION UNDER SECTION 12A

Trusts can seek registration u/s 12A to claim an exemption under provisions of Income Tax Act 1961. Section 12A deals with registration of trust.

Earlier trust, institution, or NPO/ NGO, once registered, held a lifetime validity unless the Income Tax Department cancels it. The Income-tax Department introduced changes to the rules and application format for funds, charitable trusts, universities, institutions—including educational and medical institutions—and NPOs/ NGOs from April 1, 2021. Thus, the trusts which are already registered are required to reapply for the same and obtain a new registration under a new Section 12AB.

PROVISIONAL REGISTRATION

Thus, the provisional registration u/s 12 shall be made online by filing application in the Form 10A.The following are the attachments required for duly filing in FORM 10A

  • Self-certified copy of the instrument creating the trust or establishing the institution
  • Self-certified copy of the document evidencing the creation of the trust, or establishment of the institution
  • Self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be
  • Self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010, if the applicant is registered
  • Self-certified copy of existing order granting registration under section 12A or section 12AA or section 12AB, as the case may be*
  • Where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, Self-certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up.

FORM 10A should be filed at least one month prior to the commencement of the previous year relevant to the assessment year from which the said approval is sought. The approval of provisional registration will be given in FORM 10AC and is valid for three years.

FINAL REGISTRATION

Trusts which are provisionally registered must apply for a final registration by filing FORM 10AB. at least six months before the expiry of provisional registration or six months within the commencement of charitable activities, whichever is earlier. The registration will be granted for a period of five years. The approval of final registration will be given in FORM 10AD.The following are the attachments required for filing FORM 10AB

  • where the applicant is created, is established, under an instrument, self-certified copy of the instrument;
  • where the applicant is created, is established, otherwise than under an instrument, self-certified copy of the document evidencing the creation of the applicant
  • self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be;
  • self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010 (42 of 2010), if the applicant is registered under such Act;
  • self-certified copy of existing order granting registration or approval under section 12A or section 12AA or section 12AB or clause (23C) of section 10 or section 80G of the Income-tax Act, as the case may be;
  • self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA or section 12AB or clause (23C) of section 10 or section 80G of the Income-tax Act, as the case may be, if any;
  • where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years for which such accounts have been made up;
  • where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business undertaking relating to such prior year or years for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB
  • where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB
  • self-certified copy of the documents evidencing adoption or modification of the objects; and
  • note on the activities of the trust or institution or fund.

Steps for filing FORM 10A / FORM 10AB

  • Log on to the E-filing portal of income tax department
  • Go to “Income Tax Forms” under e-File tab.
  • Select the Form Name as Form 10A/10AB
  • Fill in the details as required in the form and attach the required and applicable attachments.
  • Submit the form using digital signatures or EVC as required while return filing.

ANNUAL COMPLAINCES

Filing of ITR

It is mandatory for trusts to furnish Income tax return annually. If the trust is required to get its accounts audited then the due date for filing ITR is 31st October and in any other case 31st July of the assessment year.

Audit of accounts

The audit is also pre prerequisite for claiming exemption, where the total income of the trust computed without giving effect to the provisions of section 11 and 12 exceeds Rs 2,50,000 in any previous year, then the accounts of the trust for that year should be audited by a Chartered Accountant.

Publication of Accounts

Publication of Accounts in the newspaper if the annual income/the receipts of the Trust which have been created from the Trust property exceed Rs. 1 crore.

Filing of GST Returns

If the Trust has GSTIN, then it is required to provide GST Returns monthly or quarterly (as may be applicable).

Filing of TDS Return & Issuance of TDS Certificates

If any Trust is deducting tax at source for salaries paid to the staff/employees. It needs to provide Certificates of TDS to the persons on whose behalf TDS was being collected. It should be done within one month from the closure date of the Financial Year. Apart from this, quarterly TDS Returns are also required to be filed.