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Charitable Trust Formation and Compliance: Income Tax Act and Trust Act

Charitable Trust Formation and Compliance: Income Tax Act and Trust Act

Usually, charitable activities are undertaken by forming a separate entity. This can be a trust, a society, or a Section-8 company registered under the Companies Act, 2013. Forming a charitable and religious trust is the most preferred option. In this guide, we have discussed the procedure for the formation of the trust and the compliances that trust needs to adhere to.

Procedure for Formation of the Trust

Following is the procedure for the formation of a charitable trust:

  • Creation of Trust Deed: The procedure starts with the creation of a trust deed on the stamp paper of requisite value.
  • Submission of Deed: The trust deed shall be submitted for registration along with a photocopy of the same to the local registrar.
  • The settler along with 2 witnesses shall be present along with a photo ID proof at the time of registration of the trust deed.
  • The registrar will retain the photocopy of the trust deed while returning the original copy of the trust deed.

Documents Required for Trust Registration

Following documents shall be required for registration of the trust:

  • Aadhaar and PAN Card of the trustees.
  • Utility bills, if the property is owned. In case the property is rented, then a rent agreement along with NOC shall be submitted.
  • The trust deed shall be signed and submitted in the sub-registrar’s office in the revenue department of the concerned district’s court of the respective area.

Registration under the Income Tax Act, 1961

Registration under Section 12AB

The trust can carry on the charitable or religious activities as per the objects for which it was formed. However, in order to claim tax exemption of its receipts and income, it needs to get registered under the Income Tax Act, 1961. Section 12AB registration allows the trusts and other non-profit organizations to claim an exemption under the Income Tax Act, 1961. Following is the procedure to register the trust under the Income Tax Act, 1961.

As per Rule 17A, the application shall be made in Form 10A/10AB and shall be accompanied by the following documents:

  • Where the applicant trust is established or created under an instrument, then a self-certified copy of such instrument. In case, it is established or created otherwise, then the document evidencing the creation or establishment of trust shall be provided.
  • Self-certified copies of registration with Registrar of Public Trusts
  • Self-certified copy of registration under the Foreign Contribution Regulation Act if the trust is registered under the same.
  • Self-certified copy of existing order that granted registration under Section 12A, 12AA, or 12AB. If the registration was not granted, then a self-certified copy of the order rejecting the application shall be furnished.
  • Where the applicant trust was in existence in years prior to the year of application for registration, then the self-certified copies of the annual accounts for a maximum of 3 prior years shall be provided, if the accounts were made. If the trust also held a business undertaking during such years, self-certified copies of the annual accounts and audit report of such business undertaking shall also be provided.
  • Self-certified copies of the documents that evidenced adoption or modification of the objects shall be provided.
  • A note on the activities undertaken by the applicant trust.

The Principal Commissioner or the Commissioner, upon receipt of the application for registration of the trust, shall call for such information and documents as he may require and pass an order in writing granting the registration to the trust or refusing to register thereof.

[Note: With the introduction of new section 12AB, all the existing registered trusts shall be required to obtain fresh registration under section 12AB of the Income Tax Act, 1961 in order to be eligible to claim exemption u/s 10 or 11). 

80G Registration

Section 80G allows the donor making eligible donations to trust or any other charitable organization to claim deduction under the Income Tax Act, 1961. However, the recipient trust or the organization must obtain 80G registration in order to make their donors eligible to claim the deduction. Following is the procedure for 80G registration:

  • The applicant institution shall make an application in Form No. 10A/10AB, as the case may be to the Principal Commissioner or the Commissioner.
  • Following documents (self-certified) shall accompany the application form:
    • Copy of the Instrument in case the institution is established or created under an instrument. Otherwise, self-certified copy of the document evidencing the establishment or creation of the institution shall be provided.
    • Copy of the Registration with Registrar of Public Trusts, Registrar of Companies, Registrar of Societies, or the firms.
    • Copy of the registration under the Foreign Contribution Regulation Act, 2010 (if applicable)
    • Copy of the registration order of the existing registration. In case the registration was rejected, furnish the order of rejection thereof.
    • Where the institution was in existence before the application, then self-certified copies of the annual accounts of a maximum of 3 prior years shall be furnished.
    • Note on the activities of the applicant.

The Form 10A/10AB shall be furnished electronically through the digital signature (in case the return will be furnished under the digital signature) or the electronic verification code. The Principal Commissioner or the Commissioner shall pass an order in writing in Form 10AC for the approval of the registration along with issuing a 16-digit alphanumeric Unique Registration Number (URN).
In case of the details are not fully provided or incorrect or false information has been furnished, then the application granted in Form 10AC can be cancelled and the URN shall be deemed to have never been granted.

Compliances for the Trust

The trust shall ensure the following compliances after getting obtaining the registration:

  • Maintenance of proper books of accounts as required by the law.
  • Filing of Income Tax Return and getting the books of accounts audited by the Chartered Accountant as required by the Income Tax Act, 1961.
  • Undertake activities as per the objects subject to which the registration was granted.
  • Furnish the requisite details as required by Rule 18AB for each financial year.
  • Issue of certificates in Form 10BE to the donors.

In case you require any assistance for registration of your trust or charitable institution or compliances thereof, feel free to contact the ASC Group.

 

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