Public Trust is the preferred way of starting a non-governmental organization or NGO in India. A trust is created for the benefit of the general public and objectives can include eradicating poverty, providing education to the underprivileged, offering medical relief, or promoting the arts, science and literature. In India, there are no specific laws to govern the public trust and Trusts and Societies get registered under State Government regulations. A minimum of two trustees are required for registration while there is no upper limit for the number of trustees. It is to be noted that trusts are irrevocable which means they cannot be amended or terminated without the permission of the court.
The trust deed should have provision concerning the management of the trust along with the procedure of appointing or removing the members.
Income Tax Act, 1961, defines a Trust as “An arrangement by which property is handed over to or vested in a person, to use and dispose off for the benefit of another person”. Creation of a Trust can be broadly classified into two methods namely private trust formation and public trust formation.
Private Trust: A trust is called a private trust when it is constituted for the benefit of one or more individuals who are ascertained. Private trusts are governed by the Indian Trusts Act, 1882. A private trust may be created inter vivos or by will. If a trust is created by will it shall subject to the provisions of Indian Succession Act, 1925.
Public Trust: Trusts designed for the benefit of a class or the public generally. In general, such must be created for charitable, educational, religious or scientific purposes. There is no Central Act applicable for Public trusts, but various states have enacted their own acts suitable to their conditions and administration. Public trusts are popular because it is relatively easy to register and manage them.
- A Trust that is involved in the charitable cause has to be registered under the Public Trust Act of all states. This is also applicable when there is a transfer of immovable property in the name of the trust.
- A registered trust becomes eligible for tax exemptions provided under Section 12 A and 80G of the Income Tax Act.
- The working of the Trust involves public money in the form of donations. Hence registering it adds more credibility.
There is a general notion that trust need not have to pay tax as they work towards the welfare of the public at large. But this is not true. A trust, like any other legal entity, is liable to pay tax. In order to be exempted from tax, trust is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax authorities.
The initial step is to select a unique name for your trust, the name should not infringe someone else's name or trademark.
Before registering the trust, the founder of the trust or the “Author of the Trust” or the “Settlor of the Trust” needs to layout in a document the objectives of the trust. This document is called the Trust Deed. Along with the objectives of the trust, the trust deed also explains the manner in which the trustees have to work towards achieving the goals of the Trust.
Apply for Registration
Once the Trust Deed is drafted, an application for registration of the trust should be filed to the Registrar of Trust having jurisdiction along with the Trust Deed.
PAN & TAN Number Allotment for TDS Purposes
Once the Trust is registered, the next step is to apply for PAN Number and TAN and thereafter opening of a bank A/c.
The following documents need to be submitted for Trust registration:
- A properly drafted trust deed on Proper Stamp Value
- Registered office proof - (Rental Agreement or ownership document)
- ID proof of the Founder of the Trust
- NOC from the owner of premises.
- Two witnesses