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Trusts

Charitable and religious organisations play an important role in society. Income of these organisations is fully exempt from taxation subject tot he fulfilment of certain conditions. one of the conditions is that such organisations are required to get themselves registered under the Income-tax Act, 1961. These organisations do not exist for a profit motive and hence are known as Non-Profit Organisations (NPO). These organisations do the work which ought to have been done by the government and, therefore, these are also termed as Non-Governmental Organisations (NGO). It may be noted that the purpose and intent of these organisations is not work with any profit motive. However, they have some profit-making activity provided any income or surplus is applied for charitable purposes.

Advantages

Advantages of forming Trust

Turst are generally, formed or created to fulfil any or more of the following objectives:

  1. For discharge of the charitable and/or religious sentiments of the author or settlor of the trust, in a way that ensures public benefit.

  2. For claiming exemption from income tax u/s 10 or 11, as the case may be, in respect of incomes applied to charitable or religious puposes.

  3. For the welfare of the members of the family and/or other relatives, who are dependent on the settlor of the trust.

  4. For the proper management and preservation of a property e.g. Debenture Redemption Fund Trust.

  5. For regulating the affairs of a provident fund, superannuation fund or gratuity fund or any other fundconstituted by person for the welfare of its employees.

Registered Trusts

Advantages of Legal Regisration

Any person or entity has the right to carry on development work even without any formal registration. However, all voluntary organisations must get themselves legally registered. Some benefits of getting an organisation registered are as under:

  1. Properties can be properly vested in the name of the organisation.

  2. Bank accounts can be opened in the name of the organsiation.

  3. It become a legal entity that can sue and be sued.
  4. It provides greater credibility in sourcing funds as well as implementing programmes.
  5. It can be sustained longevity, independent of its founders.
  6. The liability of the members generally becomes limited except in the case of trust where the liability of the trustees in unlimited.

  7. It can be registered under the Imcome-tax Act, Foreign Contribution Regulation Act and various other legal authorities.

Statutes and NPO

Other Important Statutes Applicable to NPO

All registered NPOs may require subsequent registration and compliances under various other statues of the land for various purposes. Some important statutes which apply to the NPOs are as under:

  1. Registration under the Income Tax Act, 1961 to avail exemptions from Income-tax. Such registration is normally done under section 12AB of the Act. There are various other sections under which exemptions can be availed by various types of NPOs.

  2. Registration under Foreign Contribution (Regulation) Act, 2010 (FCRA) in order to receive grants from foreign sources.

  3. Approval under section 80G of the Income Tax Act, 1961 by virtue of which the donor can get the benefit of deduction in respect of donation under income-tax.

  4. Registration/approval form Reserve Bank of India for foreign NPOs to work in India under the Foreign Exchange Management Act.

  5. NPOs may also have to register or comply with various other statutes depending on the specific applicability depending on case to case basis. Some of such compliances would be as under

    • Applicability of provident fund and gratuity laws if the number of employees exceeds 20 and 10 respectively.​

    • Applicability of Goods and Services Tax Act if taxable services above the exempted limit are provided or any applicable activity is conducted.

    • Permission from specific Ministry if an international activity is conducted in India etc.

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