Step by Step Procedure on Trust Formation
Every person in this world will earn money by doing business. That means they are selling Services/Goods by fixing a price. Simply, they are expecting something.
But the same person will do some deeds without expecting anything. That is Selfless Service.
The Person can lawfully do the same selfless service by forming an NGO.
NGO is a Non-Government Organisation
The term “non-governmental organization” was created in Article 71 of the Charter of the newly formed United Nations Act in 1945. An NGO can be any kind of organization provided that it is independent of government influence and is not-for-profit.
Non-Governmental Organisations (NGOs) — also often referred to as Non-Profit Organisations (NPOs), Civil Society Organisations (CSOs), Charitable organizations, membership organizations, or the third sector — are non-profit, citizen-based groups that function independently of government.
In every country, there are numerous NGO entities, from larger organizations, professional associations, and chambers of commerce to small local charities, grassroots organizations in every city or district representing a multitude of interests, sectors, and activities.
|Location||No. of NGO’s||Source of Info|
|World wide||10 Million +||The Global Journal|
|India||3.3 Million +||Info Change|
|Brazil||1.8 Million +||World Statistics|
|USA||1.4 Million +||Urban Institute of Labour Statistics|
Example of NGO’s in India.27 February is Celebrated as World NGO Day
|Name of NGO||Location||Activity/work|
|Childline India Foundation||Mumbai||CHILDLINE 1098 is a phone number that spells hope for millions of children across India.|
|Child in Need Institute||Kolkata||Help the Mother Help the Child|
|Katha||New Delhi||Child Welfare|
|Bombay Natural History Society||Mumbai||Conversation and Bio-Diversity Research|
|Pallium- India||Thiruvananthapuram||Palliative Care and effective Pain Relief|
NGO can be formed in three ways
3. Sec 8 company (as per companies act 2013) (Previously it was Sec 25 company as per companies act 1956)
Formation and Selection of NGO will depend upon many Factors
|PARTICULARS||TRUST||SOCIETY||SECTION 8 COMPANY|
|Meaning||It is an agreement between parties, whereby one party holds the ownership of a property for the benefit of another party.||It is a collection of persons, who come together for initiating any literary, scientific, or charitable purpose.||It is an enterprise formed with a commercial, social, charitable, or any other such objective and intends to apply its profits for promoting such objectives.|
|Registration||As NGO/ NPO.||As NGO/ NPO.||As NGO/ NPO, enjoying the privileges of a limited company but without using the words “Limited” or “Private Limited” in its name.|
|Governing law||The Indian Trusts Act, 1882 for Private Trusts and general law for Public Trusts except states like Gujarat, Maharashtra where they have separate public trust acts.||The Societies Registration Act, 1860.||The Companies Act, 2013.|
|Registering authority||Deputy Registrar of the relevant area.||Registrar or Deputy Registrar of Societies of the State.||Registrar of Companies (ROC) or Regional Director.|
|No. of minimum members required at the time of registration||Minimum 2 trustees.||Minimum 7 members.||Minimum 2 directors and shareholders. The same person can be the director and shareholder.|
|The geographical area of operation||The whole of India.||State-wise, but can operate in the whole of India after taking All India Registration and becoming National Level Society.||The whole of India.|
|Main documents supporting the formation||Trust deed.||Memorandum of Association and Rules & Regulations.||Memorandum of Association and Articles of association.|
|Legal title of the property||Vests in the hands of trustees.||Held in the name of society.||Held in the name of the company.|
|Preference in case of Grant of subsidy by the Government||Not much preferred.||Not much preferred.||Mostly preferred.|
|Registration under the Income Tax Act, 1961||Yes, allowed.||Yes, allowed.||Yes, allowed.|
|Preference in case of Foreign Contribution Regulation Act (FCRA) registration||Not much preferred.||Not much preferred.||Mostly preferred.|
|Transparency in working details||Not much.||Not much.||High, because of online availability.|
|Annual compliance requirement||There is some annual compliance requirement depending on whether the trust is Private trust or Public Trust.||Annual filing of a list of names, addresses, and occupations of members of the Managing Committee of the society, with the Registrar of Societies.||Annual compliance of filing of accounts and filing of annual return of Section 8 company, with the Registrar of Companies (ROC).|
As Per Income Tax Act.
Trust formed for a charitable or religious purpose which is not intended to do commercial activities are allowed various benefits under the Income Tax Act 1961 exemption under section 11
The term religious purpose is not defined under the Income Tax Act. However, section 2(15) of the act defines a charitable purpose to include
1. Relief to the poor
3. Medical relief
4. Preservation of environment and
5. Preservation of monuments or places or objects of artistic historic interest and the advancement of any other object of general public utility
Provided that the advancement of any other object of a general public utility shall not be a charitable purpose if it involves the carrying on of any activity like trade, commerce or business or any activity of rendering any service concerning any trade, commerce or business, for a cess or fee or any other consideration of the nature of cess or application or retention of the income from such activity, Unless:-
1. Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility;
2. The aggregate received from such activity activities during the previous year does not exceed 20% of the total receipts are the trust institution undertaking search activity activities of that previous year.
Conditions to be fulfilled for the formation of trust.
1. Trust can be formed and registered with a minimum of 3 members and a maximum of 21 members
2. The name of the Trust should be decided.
3. The registered office of the trust should be decided
4. The objectives and aims of the trust should be formulated and should be written in the stamp papers
5. The board of trustees should be decided consisting founder Trustee secretary and treasurer and other trustees
6. The trusted should be executed with the following points
Suggested Format for Registration of Society
MEMORANDUM OF SOCIETY
1. Name of the Society
The Name of the society shall be (Giver the name of the Society)
2. Registered Office of the Society
3. Aims and Objectives of the Society
4. Ancillary Objects
5. Governing Body
6. Rules and Regulations
Upon Successful Registration of Trust/ Society/Sec 8 Company. They should apply for PAN Number.
Documents Required for application of Pan Card
|Trust||Copy of trust deed or copy of the certificate of registration number issued by Charity Commissioner.|
|Society||A) Copy of Agreement; or
b) Copy of Certificate of Registration Number issued by Charity Commissioner or Registrar of Co-operative Society or any other Competent Authority; or
c) Any other document originating from any Central Government or State Government Department establishing identity and address of such person.
|Sec 8 Company||It comes along with a certificate of Incorporation (as per New Spice+ Forms)|
After Obtaining PAN Card from Income Tax Department.
NGO Should open A Bank Account For its Operations.
The Bank Format as Follows
Resolution for Opening a New Current Account for Trust
Sub: Opening a New Current Account for Concerned Trust/Society/Sec 8 Company
We, Trustees Names are Trustees of M/s Trust/ Society/ Company, having its Registered Office at Registered Office Address request you to open the trust account with your Branch. The necessary Opening forms and documents are enclosed.
1. Name of the Founder chairman
2. Name of Secretary
3. Name of Treasurer
We confirm you that Bank Operations of the Trust will be carried out by Founder Chairman/Secretary/Treasurer
Mr. Name of Authorized Person
Upon Getting Bank Account
The Trust Should make all Transactions Through the Trust/Society/Sec 8 Company Bank Account.
Registration of Trust under Section 12A
Trust, Society, and Section 8 Company can seek registration u/s 12A to claim an exemption under provisions of Income Tax Act 1961 if certain conditions are satisfied. Section 12A deals with registration of trust and section 12AA deals with the procedure for registration of a trust.
“It is important to note here that even though trust, society and section 8 companies are registered as per their respective acts, the registration under section 12A is necessary to claim an exemption under Income Tax Act.”
a) To whom an application for registration is to be made? – The application for registration has to be filed with the jurisdictional Commissioner of Income Tax.
b) Documents to be furnished for registration-
An application in form 10A has to be filled.
Documents evidencing the creation of the trust or the establishment.
III. Two copies of the accounts of trust, for not more than three years.
1. In case of a trust, copy of trust deed; in case of society, copy of registration certificate and copy of the memorandum of association of society; in case of section 8 company, copy of the certificate of incorporation and copy of MOA, AOA of company.
2. Copy of PAN Number of Trust.
c) Procedure for registration-
3. The commissioner on receipt of an application for registration of a trust shall call for the documents and information as he thinks necessary to satisfy about the genuineness of the activities of the trust.
4. He shall pass an order in writing after satisfying himself about the objects of the trust.
III. If he is not satisfied, he shall pass an order in writing refusing to register the trust. The applicant shall be given the opportunity of being heard before passing any order of refusal.
Order granting or refusing registration shall be passed before the expiry of six months from the end of the month in which the application was received under section 12A.
The Commissioner is Now Call for Hearing
We can Submit our response by Post/E-mail by Date specified in the Notice. If we Desire to attend Personally, they will fix an Appointment Time by that time we can attend Personally.
We have to submit compliance sought by the numbering sequentially through a proper forwarding Letter
d) Renewal of registration- Once the registration is granted to the trust, it will behold good till the cancellation of registration. No provision requires any renewal of registration.
e) Audit of Accounts-Audit is also prerequisite for claiming exemption under section 11 and 12, where the total income of the trust computed without giving effect to the provisions of section 11 and 12 exceeds Rs 2,50,000 in any previous year, then the accounts of the trust for that year should be audited by a Chartered Accountant.
Cancellation of Registration granted under Section 12A
Registration granted u/s 12A can be canceled in below circumstances:
(i) The activities of such trust or institution are not genuine.
(ii) The activities are not being carried out in accordance with the objects of the trust or institution.
III. Trust’s income does not endure for the benefit of the general public.
(i) It is for the benefit of any particular religious community or caste.
(ii) Any income or property of the trust is applied for the benefit of specified persons like the author of trust, trustees, etc.
(iii) Its funds are invested in prohibited modes.
“It is however provided that registration will not be canceled if the trust institution proves that there was reasonable cause for carrying out activities in said manner.”
Important Note: Where a trust or an institution has been granted registration and subsequently it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, it shall be required to obtain fresh registration by making an application within a period of thirty days from the date of such adoption or modifications of the objects in the prescribed form and manner.
Filing of Income Tax Return
Is it mandatory for a trust to file a return of income?
It is mandatory for a trust referred to in Sections 139(4A), 139(4C), 139(4D), and 139(4E) to file the return of income.
Further, a trust (not covered in the above provision) is required to file a return of income if its gross total income exceeds the maximum amount which is not chargeable to tax.
Which form shall be used to file the return of income?
A trust who is required to furnish return of income in accordance with the provision of Sections 139(4A), 139(4C), 139(4D), and 139(4E) shall file return in ITR 7 otherwise in ITR 5.
Whether e-filing of return is mandatory for a trust?
A trust must file a return of income electronically with or without a digital signature. A trust may also file a return of income under the Electronic Verification Code. However, a trust liable to get its accounts audited under section 44AB shall furnish the return electronically under digital signature.
Due dates for filing of return?
The due dates of filing of return by a trust are as follows:
d) What is the tax rate?
A trust is chargeable to tax as per the slab rates which apply to an individual (not being a senior citizen or super senior citizen).
e) Penalty for delay in furnishing return of Income
It shall pay by way of penalty a sum of Rs. 100 for every day during which the failure continues.
The clarificatory amendment made by the Finance Act 2017 that entities registered under section 12AA are required to file their return of income within the time allowed under section 139 of the act.
Section 80G Donations
Section 80G of the Income Tax Act 1961 provides deduction while computing the total income in the hands of the donor.
It is important to note that when registration is granted under section 12A, it does not mean that section 80G approval is to be given i.e. registration under section 12AA will not provide automatic approval under section 80G. Section 80G applies only to charitable trusts or institutions. It does not apply to religious trust or institutions.
The recipient of money or the done gives a receipt of donation, based on which the donor is entitled to claim deduction provided, the done institution is approved under section 80G of the Income Tax Act’1961.
The institution or fund should be established for charitable purposes in India.
Registration Procedure under section 80G:
Rule 11AA provides a procedure for seeking approval under section 80G. The application for approval of any institution shall be made in form no. 10G and it shall be made in triplicate.
Documents to be furnished:
1. Copy of registration granted under section 12A.
2. Notes on the activities of the institution since its inception.
III. Copies of accounts of the institution.
The commissioner may call for such further documents or information from the institution as he deems necessary to satisfy himself about the genuineness of the activities of such institutions.
Where the commissioner is satisfied that all the conditions are fulfilled, he shall approve of the institution. When the commissioner is satisfied the conditions are not fulfilled. He shall reject the application for approval.
The time limit within which the commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the date on which such application was made.
Renewal of 80G Registration:
Before 01.10.2009, there was a requirement that before the expiry of the date as mentioned in the section 80G approval, renewal had to be sought for. However, the finance act of 2009 made a change in this regard. After such change, only those institutions require renewal whose expiry is due before 01.10.2009.
For the remaining cases, the perpetuity of approval has been provided until the commissioner withdraws the exemption. Therefore, there is no need for periodical renewal under present law.
Format for Declaration U/s 11(5) and Sec 13(1)(c)
Declaration u/s 11(5) and 13(1)(c)
Certificate u/s 13 (1)(c)
This is to certify that no part of the income since the inception of the trust has been applied directly or indirectly for the benefit of any person as referred in Section 13(3) of The Income Tax Act, 1961
|Names of all Trustees||Signatures|
No surplus is available with the trust as the trust has been recently formed. Further, we certify that the trust does not have any investment other than the bank a/c no. with Branch of Bank. As such we certify that the investments of the trust are in the modes prescribed u/s 11(5) of The Income Tax Act, 1961
|Names of all Trustees||Signatures|
Appointment of Chartered Accountant for the Trust
The Trust Should Appoint a Chartered Accountant for the Purpose Examining and Auditing of Books of Accountants, Records, Bills of the Trust Activities.
Chartered Accountant Name
RE: APPOINTMENT AS CHARTERED ACCOUNTANT
We have the pleasure to inform that you have been appointed to act as our Trust Authorised Representative. You are authorized to deal with the Income Tax Department on all tax matters required under the Income Tax Act 1961 on our behalf.
This authority shall remain in force until we revoke it in writing
Latest Amendments to the Trust in Finance Act 2020
Under the new tax regime, she proposed to amend Section 10(23C), Section 11, Section12A, Section12AA, Section 80G and proposed to insert a new section 12AB. All these amendments are proposed to be made w.e.f. June 01, 2020.
The following amendments classified the charitable/religious trusts institutions etc. into four Categories which are: –
1. Charitable / religious trusts/ institutions etc. registered under existing laws. (‘A Category’)
2. Charitable / religious trusts/ institutions etc. whose registration expired under the new provisions in 5 years. (‘B Category’)
3. Charitable/religious trusts institutions etc. having provisional registration under new provisions. (‘C Category’)
4. Others Cases. (‘D Category’)
|Basis||A Category||B Category||C Category||D Category|
|Application to be made for registration||Within three months from the Commencement of the new provisions i.e. June 01, 2020.||At least six months before the expiry of the registration.||Within Six Months from the commencement of activities or six months before the expiry of provisional registration, whichever is earlier.||At least one month before the commencement of the previous year relevant to the assessment year for which approval is sought.|
|Order to be passed||Commissioner or Principal Commissioner shall pass an order in writing approving for five years||Commissioner or Principal Commissioner shall pass an order in writing granting approval for five years after verifying the genuineness of the activities and objects by calling for any document as he may deem fit.||Commissioner or Principal Commissioner shall pass an order in writing granting approval for five years after verifying the genuineness of the activities and objects by calling for any document as he may deem fit.||Commissioner or Principal Commissioner shall grant in writing the provisional registration for three years and send a copy of such order to the Charitable/ religious trusts institutions etc.|
|Income on which new provisions and registration shall apply||Assessment year from which approval was earlier granted to it||Immediately following the financial year in which such application is made||From the first of the assessment years for which provisional Registration granted.||Immediately following the financial year in which such application is made|
|The time period in which order shall be passed||Within three months, respectively, calculated from the end of the month in which the application was received||Within six months, respectively, calculated from the end of the month in which the application was received||Within six months, respectively, calculated from the end of the month in which the application was received||Within one month, respectively, calculated from the end of the month in which the application was received|
|Application to be made for 80G||Within three months from the Commencement of the new provisions i.e. 1st June 2020.||At least six months before the expiry of the registration.||Within Six Months from the commencement of activities or six months before the expiry of provisional registration, whichever is earlier.||At least one month before the commencement of the previous year relevant to the assessment year for which approval is sought.|
Key points to be noticed under new provisions —
> In case, if a charitable/religious trusts/ institution etc. get itself registered under Section 10(23C) or 10(46) then the registration under Section 12AB shall stand inoperative, whereas if the charitable/religious trusts institution etc. apply again for registration under Section 12AB then the registration under Section 10(23C) or 10(46) shall stand inoperative.
> Application for registration under Section 12AB shall be made to the Commissioner or Principal Commissioner of the Income-tax.
> Further, the process for getting registered under Section 12AA and Section 10(23C) is the same as discussed in the above table.
> Registration under Section 12AA shall stand inoperative w.e.f. June 01, 2020.
> For B and C category of trusts the Commissioner or Principal Commissioner of Income-tax shall reject the application in a case, they are not satisfied with the genuineness and compliances of the objects, after providing the reasonable opportunity of being heard.
> In case of modification or alteration in the objects of the charitable/religious trusts institution etc., the institution of the charitable/religious trust, etc. shall file the application for registration with the modified and altered objects under the new provisions of law within 30 days from the day of modification of objects.
All applications pending under Section 12AA before the Commissioner or Principal Commissioner and for application for which no order has been passed, shall be deemed to be applications pending under Section 12AB.
Further, in a case where Commissioner or Principal Commissioner is satisfied that the institution of the charitable/religious trust, etc. have not complied with the objects mentioned or any other law, shall cancel the registration of charitable/religious trusts institution, etc. after providing the reasonable opportunity of being heard.
♦ Amendments under Section 80G
The Charitable/religious trusts institution etc. shall file an application before the Commissioner or Principal Commissioner within the prescribed time limits to sought registration under Section 80G. Procedure and time limit to file an application for registration under Section 80G is the same as the procedure for registration under Section 12AB.
Further, the institution of the Charitable/religious trust, etc. shall file a statement of receipts of donation to the prescribed Income-tax authority in the prescribed time.
Further, the institution of the charitable/religious trust, etc. shall furnish to the donor, a certificate specifying the
amount of donation in such manner, containing such particulars and within such time from the date of receipt of donation, as may be prescribed. Furthermore, the donor shall be provided the deduction under 80G directly in the return of income based on the prescribed statements
♦ Amendments under Section 80GGA
Clause 34 of Finance bill, 2020 has specified that no deduction shall be allowed to the donor under Section 80GGA in respect, of donation exceeding the amount of Rs. 2,000/- unless the donation is paid in any mode than cash.
♦ Furnishing of Statements and Certificate
Charitable/religious trusts institution etc. shall furnish the following statements: –
In case of failure to file the above statements the Charitable/religious trusts institution etc. shall be levied the fees of Rs. 200/- for each day during which the failure continues.
Further, the Assessing office may levy a penalty of an amount not less than Rs. 10,000/- which may be extended to an amount of Rs. 1,00,000/-.
♦ An amendment under Section 115TD
After the introduction of Section 12AB, nothing contained in Section 12AA shall apply to the trust or institution registered under Section 12AA. Hence to make the provisions of Section 115TD applicable Clause 33 of the Finance Bill, 2020 have substituted the word, figures, and letters “under section 12AA” with the words, figures, and letters “under section 12AA or section 12AB” in Section 115TD which shall be effective from June 01, 2020.
Amendments brought in by Finance Bill, 2020 will bring the additional burden of compliances for Charitable/religious trusts institution, etc. but it will lead to greater and transparent monitoring of activities of charitable trusts. The aforesaid amendments seem to be in the way to make the processes more transparent and uncorrupted by