Trust Compliance in India – Complete Guide

1. What is a Trust?

A Trust is a legal arrangement where a person (the settlor) transfers assets to trustees, who manage them for the benefit of beneficiaries as per the Trust Deed.

• Governed by: Indian Trusts Act, 1882 (Private Trusts) and relevant state laws (Public Trusts)

• Common types:

  • Private Trusts: For family members or specific beneficiaries

  • Public Charitable Trusts: For public welfare, religion, education, or charitable purposes

2. Key Legal Provisions

• Indian Trusts Act, 1882 – Private trusts

• Public Trust Acts (State-specific) – e.g., Maharashtra Public Trusts Act, 1950

• Income Tax Act, 1961 – Sections 11, 12, 12A for charitable trusts

• FCRA (Foreign Contribution Regulation Act) – For trusts receiving foreign donations

3. Mandatory Documents for Trust Registration

A. Private Trusts

1. Trust Deed (signed by Settlor & Trustees)

2. PAN of Trust (mandatory for bank account)

3. Identity & address proof of settlor and trustees

4. Proof of trust property (if immovable assets)

5. Stamp duty as per state law

B. Public Charitable Trusts

1. Trust Deed (objectives clearly defined)

2. PAN of Trust

3. 7–12 Trustees details with ID & address proof

4. Proof of initial corpus/funds

5. NOC from property owner (if property donated for trust use)

6. State-specific forms for registration

4. Step-by-Step Compliance Process

Step 1: Draft Trust Deed

• Clearly define:

  • Name of trust

  • Settlor & trustees

  • Beneficiaries

  • Objectives

  • Powers & duties of trustees

  • Accounting and audit provisions

Step 2: Get Deed Printed on Stamp Paper

• Value of stamp duty varies by state

• Some states allow e-stamping

Step 3: Trustees Sign & Notarize

• All trustees must sign the deed

• Optional: Notarization for added legal weight

Step 4: Registration of Trust

• File trust deed with Sub-Registrar of Trusts (Private & Public)

• Submit two witnesses’ signatures

• Obtain Trust Registration Certificate

Step 5: Apply for PAN & Bank Account

• PAN required for tax compliance

• Open separate trust bank account

Step 6: Income Tax Registration (for charitable/public trusts)

• Apply under Section 12A / 12AA to claim exemption

• Apply for 80G certificate (for donor tax benefits)

5. Ongoing Compliance for Trusts

6. Advisory Draft – Trust Governance

Trustee Duties:

1. Act in good faith and in best interest of beneficiaries

2. Maintain separate trust accounts

3. Avoid conflicts of interest

4. Conduct regular board/trustee meetings

5. Prepare annual report

Practical Advice:

• Maintain clear documentation of donations & expenses

• Trustees should maintain minutes of meetings

• Ensure compliance with state laws (Maharashtra, Delhi, Gujarat, etc.)

• Conduct internal audit even if not mandatory

7. Common Mistakes to Avoid

• Not registering trust deed

• Using personal bank account for trust funds

• Ignoring annual income tax filings

• Delayed filing of 12A or 80G renewals

• Not maintaining proper accounting books

8. Compliance Checklist (Trust Ready-Made)

• Trust Deed drafted & signed

• Trust deed registered with Sub-Registrar

• PAN & Bank Account opened

• Income Tax exemption applied (12A / 80G)

• Annual Accounts & Audit maintained

• ITR filed annually

• FCRA compliance (if applicable)

• Trustee meetings & minutes maintained

• Renewal of 12A / 80G approved on time

9. Penalty for Non-Compliance

• Penalty under Income Tax Act for non-filing

• For Public Trusts, Charity Commissioner can impose fines

• Trust bank account can be frozen due to tax irregularities

10. Advantages of Proper Trust Compliance

• Legally recognized entity

• Tax exemptions for donations & income

• Donors can claim 80G benefits

• Transparency builds trust & credibility

• Avoids legal disputes & penalties

11. Documents & Templates Provided by Filing By

1. Trust Deed Template (Private / Public Trust)

2. Board/Trustee Resolution Draft

3. Donation & Accounting Record Templates

4. Checklist for 12A & 80G Registration

5. Compliance Calendar for annual filings

12. Why Choose Filing By?

• End-to-end trust compliance services

• Expert legal and accounting advice

• Prepares all documents, drafts & registration filings

• Ensures income tax and state law compliance

• Transparent pricing & dedicated support

Additional Information on Trust Compliance in India

1. Types of Trusts and Regulatory Differences

2. Corpus & Funding

• Corpus is the initial capital donated by the settlor or trustees.

• Minimum corpus is state-dependent; no fixed national limit, but sufficient funds must exist to run activities.

• Funding sources:

  • Settlor donation

  • Public donations (for public trust)

  • Grants (government or private)

  • Membership fees (if applicable)

• Donations must be properly documented for 80G compliance.

3. Income Tax Compliance in Detail

Key Sections for Tax Exemption:

• 12A / 12AA – Registration to claim income tax exemption

• 80G – Donor can claim deduction

• 10(23C) – Exemption for educational / medical institutions

Important Considerations:

• Trust must maintain separate books of accounts

• Exemptions apply only to income used for objectives

• Annual return filing is mandatory even for small trusts

• Unutilized funds must be carried forward in a separate reserve account

4. FCRA Compliance (Foreign Contribution)

• If a trust receives foreign funds, it must register under FCRA, 2010

• Annual reporting through Form FC-3

• Violations may lead to license cancellation or penalty

5. Audit & Accounting

6. Trustees’ Duties & Governance

• Act bona fide in the interest of beneficiaries

• Maintain transparency & accountability

• Hold trustee meetings and keep minutes

• Ensure compliance with MCA / Charity Commissioner / IT Act

• Avoid personal gain from trust activities

Practical Advisory:

• Adopt Trustee Code of Conduct

• Maintain internal audit system

• Update policies for asset utilization, donations, and expenditure

7. Renewal & Reporting

8. Common Mistakes and Advisory Notes

1. Using personal bank accounts for trust funds

2. Not maintaining separate books of accounts

3. Delayed filing of IT returns / annual reports

4. Not obtaining 12A / 80G registration before fundraising

5. Not documenting trustee decisions properly

Advisory:

• Keep corpus and donation records separate

• Follow state-specific compliance rules strictly

• Conduct internal review annually to avoid penalties

9. Digital & Practical Tools for Trust Compliance

• Accounting Software: Maintain receipts, donations, and payments

• Minutes Template: Record trustee meetings

• Annual Reporting Template: Simplifies Charity Commissioner / IT filing

• Compliance Calendar: Track renewals, audits, and 12A/80G filings

10. Trustee Advisory Draft (Sample Guidance)

Purpose: Ensure smooth governance & legal compliance

Trustee Responsibilities Draft:

1. Trustees shall act in good faith for beneficiaries’ interests

2. Trustees shall maintain trust records for at least 8 years

3. Trustees shall approve annual accounts before filing

4. Trustees shall ensure legal compliance (IT Act, FCRA, state acts)

5. Trustees shall avoid conflict of interest or personal benefit

6. Trustees shall review donor fund utilization quarterly

11. Practical Checklist – Full Trust Compliance

• Draft & register trust deed

• Apply PAN & open trust bank account

• Apply for 12A / 80G registration

• Maintain corpus fund & donation records

• Conduct annual audit & prepare financial statements

• File annual IT return (ITR-7)

• FCRA registration & reporting (if applicable)

• Maintain minutes of trustee meetings

• Renew 12A / 80G / FCRA approvals timely

• Update compliance calendar