A trust is a relationship in which a person or entity is bound by a fiduciary relationship to exercise that legal rights over the trust property for the benefits of any one or more individuals known as beneficiaries. The trust shall be governed by a set of written terms and conditions known as trust deed.

According to Section 3 of Indian trust Act,1882, trust is defined as an obligations annexed to the ownership of the property, arising out of confidence reposed in, accepted by the owner, or declared and accepted by him, for the benefits of another or of another and the owner.

Indian trust Act, 1882

TYPES OF TRUST

The trust has been broadly classified as

1. Public trust: The trust which is created for the benefits of public at large or where the beneficiary is incapable of ascertainment is known as public trust. These trusts are essentially governed by charitable and religious trust act,1920, the religious endowments act, 1963, the societies  registration act,1860, etc. But not governed by Indian trust Act, 1882.

2. Private trust: The trust created for the benefits of one or more individuals that can be particularly ascertained. These trusts are accustomed to act as per the provision of Indian trust Act, 1882.

WHO CAN FORM A TRUST

Any person who is competent to hold a property can form a trust. This may include

  • Company
  • Individuals
  • Association of persons
  • HUF
  • Legal guardian on behalf of the minor with permission of the civil court.

PROCEDURE OF CREATION OF A TRUST DEED

  • Creation of trust deed: To register a trust, proper deed should be created on a stamp paper of the expected value of the trust.
  • Submit the trust deed along with the photocopy of the deed to the local registrar for registration
  • At the time of registration, the settler and the two witness must be present along with the original identity proof.
  • The registrar retains the photocopy of the trust deed and returns the original registered copy of the trust deed.

DOCUMENTS  REQUIRED FOR REGISTERING THE TRUST DEED

1. Aaadhar and Pan card (original with the self attested copies)

2. Water, Electricity bills with their own name if the property is self occupied

3. Rent agreement along with NOC from the owner of the property in case of rented property

4. Trust deed to be signed and submitted in sub registrar office under revenue department act of the concerned district court of respective area or district.

FILING FORM 12A

12A registration is granted by Income tax department to trust and other non  profit organisations for a period of 5 years which enable them to claim exemptions under income tax act over their surplus incomes. In order to claim exemption under 12A the trust should able to meet the definition of charitable purposes as defined in Income Tax Act, 1981

ESSENTIAL RECITALS OF TRUST DEED

A trust deed may be created using any language sufficient to show the intention. A trust deed should have

1. Name of the trust

2. Name of the author/ settler of the trust

3. Name of the trustee

4. Name of the beneficiary whether individual or public at large

5. Objects and purpose of the trust

6. Property that shall devolve

7. Place of principal or other offices of the trust

8. Procedure for appointment, removal or replacement of a trustee, their rights, duties and powers etc.

9. Rights and duties of the beneficiaries

10. Mode and methods of dissolution of trusts

BENEFITS OF FORMING A TRUST

1. To avoid probate in substantial savings in time, legal fees and paper work

2. Trust gives greater protection against a legal action who is unhappy with the dissolution of the trust property

3. Reduces estate taxes which are to be paid while transferring property after death

4. Trust can be used to claim exemption of any income that are arising out of profits and gains from business and professions

5. Trust provides a greater confidentiality to the dissolution of property which can reduces the risks of inter family conflicts

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Taxblock India Private Limited, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Indi View Full Profile

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4 Comments

  1. ASHOK KUMAR SHARMA says:

    Dear sir,

    1. While surfing the net, I came across an article at your TAXGURU site on the Tax liability of Dividend Income from a domestic company received by an Individual taxpayer. The relevant portion of the said article is appended hereunder : “Further, it is also important to make a note that the dividend distribution tax is abolished vide the Finance Budget 2020. Thus, the domestic company would not be paying the dividend distribution tax, and accordingly, the dividend income will become taxable in the hands of the recipients”.

    2. On the similar subject, I also came across an article on the site of ClearTax titled ‘Income from other sources'(Updated on Aug 26, 2021 – 11:51:14 AM). Under the FAQ, the following question and answer is appended :-

    Q• I have received dividend from an
    Indian company this year. Is this taxable
    as income from other sources?

    Ans:- No. Please note that dividend income received from an Indian company is
    exempt under Section 10(34) of the Income-tax Act, 1961 and need not be shown
    under “other sources” as income but must be shown under “Exempt income” in your
    tax return. However, a taxpayer other than a company, in receipt of dividend in
    excess of Rs 10 lakhs is liable for income tax on such income at the rate of 10%

    3. The above two conflicting versions from specialists/ professionals have created a confusion in my mind on the subject.

    4. Could you examine the issue in totality and provide a clarity to proceed with filing of my ITR for A/Y 2021-22 ? I am making a similar query to M/S ClearTax as well.

    Thanking you,

    Yours sincerely,

    AK Sharma
    (Mob : 9717776460)

    1. taxblock India Pvt.Ltd says:

      Hello Ashok, Thanks for your reply to our blog.
      According to Finance act, 2020, the dividend is now taxable in the hands of investors rather than the company itself. Provided, that the dividend is distributed only on or after 1st April 2020.

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