Understand the taxation of trusts in India, covering registered and unregistered trusts. Learn about relevant sections, exemptions, and tax implications for trusts and associations of persons (AOPs).
TRUST/AOP can refer to two separate concepts that are commonly used in the country:
1. TRUST: In India, a trust is a legal entity that is created to hold and manage assets for the benefit of a specific group of people or a particular cause. Trusts are commonly used for philanthropic, charitable, or religious purposes, and they are governed by the Indian Trusts Act, 1882.
2. AOP: AOP in India stands for Association of Persons. It is a tax-related concept that refers to a group of people who come together for a common purpose, such as a business venture. AOPs are treated as separate entities for tax purposes and are subject to their own tax rules and regulations.13
Overall, TRUST and AOP are two separate concepts in India that have different legal and tax implications.
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Types of Trust
There are several types of trusts and AOPs in India, each with its own specific characteristics and legal requirements. Here are some of the most common types:
Types of Trusts in India:
1. Public Charitable Trusts
2. Private Trusts
3. Religious Trusts
4. Educational Trusts
5. Charitable Trusts for the benefit of Scheduled Castes and Tribes
6. Trusts for the Protection of the Environment
Types of AOPs in India:
1. Partnership Firms
2. Limited Liability Partnerships (LLPs)
3. Cooperative Societies
4. Joint Hindu Family Businesses (HUFs)
5. Association of Persons for Taxation purposes
6. Body of Individuals for Taxation Purposes
Each type of TRUST or AOP has its own unique features, legal requirements, and tax implications, which must be considered before choosing to form or operate one.
Registered & Unregistered Trust.
Trusts can be classified into two broad categories based on their registration status: Registered Trusts and Unregistered Trusts.
Registered Trusts: A registered trust is a trust that has been created by a trust deed and has been registered with the relevant g67aovernment authorities in accordance with the Indian Trusts Act, 1882, and other state-specific laws and regulations. Registered trusts are legal entities and enjoy certain benefits, including tax exemptions under certain conditions.
Unregistered Trusts: An unregistered trust is a trust that has been created by a trust deed but has not been registered with the relevant government authorities. Unregistered trusts do not have legal recognition as independent entities and do not enjoy any of the benefits or protections of registered trusts. However, they can still be valid and enforceable to the extent that they comply with the requirements of the Indian Trusts Act, 1882.
It is important to note that registration of a trust is not mandatory, but it provides legal recognition and benefits to the trust and its beneficiaries. Therefore, it is generally recommended to register a trust to avail of the benefits and legal protections that come with registration
Taxation of Trust in India
The taxation of registered trusts depends on the purpose and activities of the trust. Here are some key points to keep in mind regarding the taxation of registered trusts:
1. Tax Exemptions: Registered trusts are eligible for tax exemptions under certain conditions, depending on the purpose and activities of the trust. For example, trusts created for charitable purposes are eligible for tax exemptions under section 11 of the Income Tax Act, of 1961. However, the trust must comply with certain conditions, such as utilizing at least 85% of its income for charitable purposes, and the income earned by the trust must be applied toward charitable activities.
2. Tax on Business Income: If the registered trust is engaged in a business activity, then it will be taxed in the same manner as any other business entity. The trust will be required to file income tax returns and pay taxes on any income earned from the business activity.
3. Tax on Rental Income: If the registered trust earns income from renting out a property, such as buildings or land, then the rental income will be subject to income tax. The income tax rate will depend on the income slab under which the trust falls.
4. Tax on Capital Gains: If the registered trust earns income from the sale of assets, such as property or shares, then the income will be treated as capital gains and taxed accordingly. The tax rate on capital gains will depend on the type of asset sold and the holding period of the asset.
5. GST: Registered trusts may also be required to pay GST if they are involved in taxable activities such as providing services for a fee or selling goods.
It is important to note that the tax implications for registered trusts can be complex and may vary depending on the specific circumstances of the trust. It is advisable to consult with a tax expert or chartered accountant to understand the tax implications of a particular registered trust.
Taxation of Registered Trust – Relevant sections and their provisions
Registered trusts in India are taxed under various sections of the Income Tax Act, 1961, depending on the nature and purpose of the trust’s activities. Here are some of the relevant sections and their provisions:
1. Section 11: This section applies to trusts that are created for charitable purposes. Such trusts are eligible for tax exemptions if they apply at least 85% of their income for charitable activities. The income that is applied towards charitable purposes is not subject to income tax.
2. Section 12: This section applies to trusts that are created for religious purposes. Such trusts are eligible for tax exemptions if they utilize their income for religious purposes.
3. Section 10(23C): This section applies to trusts that are created for educational purposes. Such trusts are eligible for tax exemptions if they utilize their income for educational purposes.
4. Section 13: This section sets out certain conditions that registered trusts must comply with in order to retain their tax-exempt status. For example, the trustees of the trust cannot receive any benefit from the trust, and the trust cannot carry out any activities that are not related to its charitable purpose.
In addition to the above, registered trusts may also be eligible for certain tax rebates and deductions, such as deductions for donations made to the trust or for expenses incurred for charitable activities. These rebates and deductions are subject to certain conditions and limitations as prescribed under the Income Tax Act, 1961.
It is important to note that the tax implications for trusts in India can be complex and may vary depending on the specific circumstances of the trust. It is advisable to consult with a tax expert or chartered accountant to understand the tax implications of a particular trust.
Taxation of Unregistered Trust – Relevant sections and their provisions
Unregistered trusts in India are taxed under the provisions applicable to an Association of Persons (AOP) as per the Income Tax Act, 1961. Here are some of the relevant sections and their provisions:
1. Section 67A: This section provides for the taxation of the income of an unregistered trust as if it were the income of an AOP. This means that the income earned by the trust is taxed at the maximum marginal rate applicable to an AOP, which is currently 30%.
2. Section 161: This section provides for the taxation of the income of a trust when the trust becomes an association of persons due to certain events, such as the death of the sole trustee. In such cases, the income of the trust is taxed as the income of the AOP.
3. Section 164: This section provides for the taxation of the income of a trust in the hands of the beneficiaries if the trust distributes income to the beneficiaries. The income is taxed as per the tax slab applicable to the beneficiaries.For more Info Visit- Canihalhisaria.blogspot.in
In addition to the above, unregistered trusts may also be eligible for certain tax rebates and deductions, such as deductions for donations made to the trust or for expenses incurred for charitable activities. However, the availability of such rebates and deductions for unregistered trusts is limited compared to registered trusts.
It is important to note that the tax implications for unregistered trusts in India can be complex and may vary depending on the specific circumstances of the trust. It is advisable to consult with a tax expert or chartered accountant to understand the tax implications of a particular unregistered trust.
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