Trust Registration
If you are a trustee and operating the duties of a Trust, you can save the funds by claiming the tax benefits but for that, you need the Trust Registration. Corpseed will assist you in getting the Trust Registration.
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An Overview of Trust Registration
We often encounter the word ‘trust’ and be curious about its meaning but rarely do we care to find out the actual meaning of trust and understand the concept with its purpose. But now you are at the very right place where you will get to know about the trust, terms related to the concept of trust and the process of Trust Registration. Some people have some property and the obligation attached to it. In case they, themselves are not capable of delivering the obligation so attached, they transfer this obligation to the trustee and he further delivers the obligation to the beneficiary.
Here the person who originally owns a property is called the author of the trust, the person who received the property after the transfer of obligation is called the trustee and the people to whom the trustee will deliver the obligation so attached to the property are called the beneficiaries. The author of the trust requires to use an ‘Instrument of Trust’ to transfer such property to the trustee. This document is called Trust Deed and you need to register it to reiterate its validity and claim the benefits provided under the Income Tax Act. The Trust Registration also ensures the rights of the beneficiaries of such trust.
Who can Register a Trust?
You require to register the trust to claim the benefits provided under the Income Tax Act. The Trust Deed Registration should also be sought by the parties. The Trust Author requires to register the Trust Deed with the Registrar of his jurisdiction. Trust Author is the person who holds the property originally and transfers it to the trustee, so he must ensure that the deed is registered. A trustee may also lose the title to the property if the Trust Author later denies the trust. To avoid such situations a Trustee should also ensure the Trust Deed Registration. Hence we can say that the Trust Author and the Trustee both have a collective duty to register the Trust Deed.
The person who creates Trust must be a person capable of making contracts and the beneficiary can be any person who is capable of holding a property. A Trustee can be any person who can hold a property but when he needs to exercise his discretion, he has to be capable of being a party to the contract.
Parties Involved in Trust Registration
Suppose, there is a person X who bought a house on credit. He is paying EMIs of his house to the Bank. Now X needs to leave the country for some reason but then who will take care of the house and pay EMIs on time? For this matter, he signs a trust deed with another person Y and transfers his house to him along with the obligation towards the bank. Now person Y needs to pay EMIs to the bank. Here person X is Trust Author, person Y is Trustee and the Bank is the Beneficiary. Hence a trust involves the following parties-
- Trust Author: The trust author is the person who establishes the trust by transferring their property and associated obligations to the trustee. They are the original owner of the property and initiate the creation of the trust.
- Trustee: The trustee is the individual or entity entrusted with the responsibility of holding and managing the property in the trust for the benefit of the beneficiaries. They have a legal obligation to act in the best interests of the beneficiaries and fulfil the obligations outlined in the trust deed.
- Beneficiary: The beneficiary refers to the individual or group of individuals who are entitled to receive the benefits or fulfillments arising from the trust. They can be specifically named in the trust deed or defined as a class of individuals based on certain criteria.
Benefits of Trust Registration
Trust Registration provides many benefits to the Trust or, Trustee and Beneficiary. Some of the major benefits are as follows-
- Financial Benefits
The Income Tax Act of 1961 provides an exemption for the trusts for the income they generate from the contributions. This income might have counted towards their taxable income but this won’t be the case because they have registered as a Trust. Such exemptions can be claimed after registering the Trust under section 12AB of the Income Tax Act.
- Legal Recognition
The Trust Deed Registration under the Registration Act provides legal safety to the trust and ensures the delivery of justice in case any party tries to waive off his obligations. If the Trust deed is registered under the Registration Act, it becomes admissible in a court of law and actions can be taken against the offender.
- Social Benefits
It facilitates the establishment of charitable trusts which further helps the needy section of the society. There are many examples of trusts that are helping citizens by providing them with facilities including health, food, education etc.
Types of Trust Registration
There are numerous types of trust that a Trust Author can create. Some of the major types are as follows-
- Revocable Trust
- Irrevocable Trust
- Asset Protection Trust
- Charitable Trust
- Constructive Trust
- Spendthrift Trust
Based on the ownership and fund management of the Trust, they can also be divided into three categories - Private, Public, and Hybrid. Private Trusts are created for personal property management while Public Trusts are for the welfare of the general public at large. When a Trust utilize the features of these two trust types, it can be called a hybrid Trust or the Public-cum-Private Trust.
Documentation for Trust Registration Certificate
You need the following documents to register your trust-
- Aadhaar Card of Each Party
- PAN Card of Each party
- PAN Card of the Trust
- Photograph of Each Party
- Evidence of Current Registered Address
- Trust Deed
- The objective of the Trust
- Organisation’s Rules
- Registration Application
- Declaration Signed by all Trustees
- NOC from Property Owner
Process of Trust Registration in India
The Trust Deed Registration is important as it makes the trust deed legally admissible and also the claim regarding the tax benefits can be sought after registering the trust under the Income Tax Act. The Trust Registration Process includes the following steps-
- Finalize the name of your Trust that you are going to register before starting the Trust Registration Process.
- Draft a Trust Deed and include all the necessary clauses as well as the clauses that may be needed for your specific situation.
- You need to submit a registration application to the principal commissioner or the commissioner of Income Tax.
- On receiving the application, the commissioner will call for the documents or information as required.
- On examining the documents and details so submitted, the commissioner will make inquiries as it seems necessary to satisfy the functioning of the trust.
- The commissioners inquire about the genuineness of the activities of the trust and the compliances it requires to fulfil.
- After satisfying the inquiries so made, the commissioner will issue an order for the registration of the Trust.
- The trust is registered by the commissioner for five years.
- If the commissioner is not satisfied with the inquiries made regarding the objectives and activities of the Trust, it rejects the application for Trust registration process.
- In case of rejection, the commissioner provides a due opportunity for the applicant for being heard.
- After successful registration, the Trust sends a copy of the order regarding the registration of the trust to the registered address of the Trust.
Cancellation of Trust Registration Certificate
If the commissioner has ordered the registration of a Trust but subsequently finds out that the activities of the Trust are not genuine and following the objectives of the Trust, he can pass the order of cancelling the Trust Registration Certificate and provides the reasonable opportunity of being heard to the Trust.
Trust Deed Format for Trust Registration
A Trust Deed is a comprehensive document that mentions the following details about the trust, obligations and the parties involved and has the clauses regarding the functioning of the Trust-
Basic Information
The Trust Deed must contain the basic information regarding the name of the trust and parties, a declaration for the creation of the Trust, the address etc.
Objectives
In the next section, you must describe the objectives, motto, and benefits of the Trust. The involved properties must be mentioned in it on which the trust is created.
Rules of the Trust
You must describe the rules regarding the functioning of the trust in this section. It may contain information including the qualification of the Trustees, the procedure for the appointment and cessation of the Trusteeship, rules regarding the administration of the Trust, powers of Trustees, Meetings, and Resolutions etc. It should also include the designation of persons who will be responsible for legal proceedings and execution of documents. Rules may not be relevant after a long time hence the power to alter the rules must exist and the same shall be explained in the Trust Deed.
Financial Details
The next section should describe the details of fund management, accounts, audit, the bank account of the trust and its operating rights. It may also have clauses including the application of income, remuneration to the trustees and the Indemnity.
Dissolution of the Trust
At the end of the deed, the provisions relating to the dissolution of the trust should also be mentioned. It will govern the procedure that will be followed to manage the assets of the trust after the event of dissolution.
Laws Involved
The following laws are involved in the registration of trusts-
- Indian Trusts Act, 1882
Indian Trusts Act of 1882 governs the laws relating to the trusts. It defines the major parties and terms involved along with the duties and responsibilities of stakeholders.
- Indian Registration Act, 1908
The Trust Author transfers the title of ownership to the Trustee through a Trust Deed. This deed must be registered under the Registration Act of 1908 to be valid in a court of law.
- Income Tax Act, 1961
The Income Tax Act of 1961 prescribes law relating to the income of some trusts. The income generated from the contributions does not calculate in the total taxable income. It provides the procedure to register the trust so that it can claim the benefits provided in the Income Tax Act.
What is a Breach of Trust?
If the Trustee breaches any duty imposed on him, he will be liable for the breach of Trust. In any such case, the trustee needs to fulfil the losses that occurred because of his breach. He must fix any loss to the Trust property or the beneficiary. But this clause does not apply if any beneficiary induced the Trustee to commit the breach of trust or is the reason for the loss himself being a party competent to the contract.
How Corpseed Can Assist You?
Our team at corpseed is continuously working to assist businesses in their compliance managment and acquiring the registrations and licences as required. We provide the best consultation to our clients through desk-based research, documentation and coordination. Our team has extensive knowledge and experience of the laws applicable in India. We can provide you with the requisite guidance regarding Trust Registration in India and assist you to obtain the Trust Registration Certificate. We serve as a one-stop solution for all your business needs.
Connect With Corpseed
Connect with the Corpseed team to discuss your requirements at IVR: 7558640644 or hello@corpseed.com. It takes 20–25 minutes to discuss the requirement.
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Job Completed
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Frequently Asked Questions
Quick answers to common questions about this service.
What is Trust?
A trust is a legal arrangement where the owner of a property transfers its obligations to a trustee who manages and delivers the benefits to the beneficiaries according to the trust's instructions. It provides legal recognition, and tax advantages, and ensures the fulfilment of obligations.
Who should register the Trust?
The trustee should register the trust according to section 12AB of the Income Tax Act to claim the Tax benefits provided to the trusts. Both the Trust Author and the trustee have a collective responsibility to register the trust deed. The trust author, who originally holds the property and transfers it to the trustee, must ensure that the deed is registered with the Registrar of their jurisdiction.
Who are eligible to be a party to the Trust?
The creator of a trust must have the legal capacity to enter into contracts, while the beneficiary can be any person who is capable of holding property. As for the trustee, they can be any individual who can hold property. However, when the trustee needs to exercise their discretion, they must also possess the capability to enter into contracts.
How many parties are there in a Trust?
There are three parties in a trust - Trust Author, Trustee, and Beneficiary.
What is the role of parties in a Trust?
The parties to a trust have the following roles-
- The Trust Author is the person who creates the trust by transferring their property and obligations to the trustee.
- The Trustee is the person or entity who holds and manages the property in the trust on behalf of the beneficiaries.
- The Beneficiary is the individual or group of individuals who are entitled to receive the benefits from the trust.
What are the benefits of Trust Registration?
The benefits of trust registration include-
- Trust registration facilitates the establishment of charitable trusts that assists the needy sections of society.
- Trusts that are registered can enjoy tax exemptions on the income generated from contributions.
- Registering a trust provides legal protection and ensures that justice can be served in case any party attempts to evade their obligations.
What benefits does Trust Registration provide to the Trustor?
Trust registration provides the following benefits to the trustor-
- It provides financial benefits to the Trust after registration under the
- Registering the trust deed under the Indian Trusts Act of 1882 ensures legal recognition of the trust.
- Trust registration ensures the rights of the beneficiaries.
- If any party attempts to waive off their obligations, a registered trust deed enables the trustor to take legal action and seek justice in case of any breaches or disputes.
What benefits does Trust Registration provide to the Trustee?
Trust registration provides the following benefits to the trustee-
- It assures the trustee regarding his entitlement to the property so transferred.
- In case of a violation by the trustor, the trustee can seek legal assistance based on the registered Trust Deed.
What is a trust Deed?
A Trust Deed is a document that includes the clauses regarding the trust. Through this document, the Trustor transfers the Trust Property to the Trustee for distributing the right of Beneficiaries.
What is Trust Property?
The property, that gets transferred to the Trustee through a Trust Deed is called the Trust Property or the Subject Matter of the Trust.
What are some popular types of Trust?
Some major types of Trust are as follows-
- Revocable Trust
- Irrevocable Trust
- Asset Protection Trust
- Charitable Trust
- Constructive Trust
- Spendthrift Trust
What are the documents required for Trust Registration?
You need the following documents to register your trust-
- Aadhaar Card of Each Trust Party
- PAN Card of Each Trust party
- PAN Card of the Trust
- Photograph of Each Trust Party
- Evidence of Current Registered Address
- Trust Deed
- The objective of the Trust
- Organisation’s Rule
- Registration Application
- Declaration Signed by all Trustees
- NOC from Property Owner
What is the procedure for registering a Trust?
You need to go through the following steps for the Trust Registration-
- Drafting the trust Deed
- Making a Registration Application to the Commissioner of Income Tax
- Providing the Documents as asked by Commissioner
- Complying with the objectives of the trust
- The passing of the Order regarding the Trust Registration
Which law governs the rules regarding a Trust?
The Indian Trusts Act of 1882 governs the laws regarding the creation of Trust and prescribes the duties of the related stakeholders.
Which information does a Lease Deed contain?
A Lease Deed should be formatted in a standard format. It must contain the following information-
- Name of involved parties
- List of properties in question
- The object of the Deed
- Clauses related to the administration of Trust
- Dissolution Procedure
What is a Breach of Trust?
A Breach of Trust is an event when the Trustee abstains from performing the duties as imposed on him through the Trust Deed. In any such case, he needs to fulfil the loss incurred by the Trust Property or the beneficiary.
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