Trust Compliance in India: A Complete Guide

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1. Introduction to Trust Compliance

Trusts in India are governed by the Indian Trusts Act, 1882 (for private trusts) and relevant state trust acts (for public and charitable trusts). Once a trust is registered, it must comply with a series of legal, financial, and tax-related obligations to maintain transparency, tax-exempt status, and donor confidence.

Compliance ensures the trust operates within the legal framework, avoids penalties, and remains eligible for tax benefits and grants.

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2. Types of Trusts

• Private Trust: Created for the benefit of specific individuals or families.

• Public Charitable or Religious Trust: Established for public welfare, education, medical relief, or religious purposes.

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3. Key Compliance Requirements for a Registered Trust

✅ A. Legal Compliance

1. Trust Deed Maintenance

   • The original Trust Deed must be preserved and updated in case of any changes.

   • Any amendments to the deed must be registered with the appropriate authority.

2. Trustee Meetings & Resolutions

   • Conduct trustee meetings regularly and document minutes.

   • Pass resolutions for key decisions (bank account, purchases, donations, etc.).

3. Change in Trustees or Address

   • Report changes in trustees, address, or objectives to the local Registrar and Income Tax Department.

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✅ B. Income Tax Compliance

1. PAN and TAN Registration

   • Obtain a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) for the Trust.

2. 12A Registration

   • Required for income tax exemption on surplus income.

3. 80G Registration

   • Enables donors to claim tax deductions on their donations.

4. Form 10B / 10BB Filing

   • File audit report under Form 10B (if income exceeds ₹2.5 lakh) or 10BB (if covered under specific provisions).

5. Form ITR-7 Filing

   • Mandatory for all trusts (even if income is exempt), by 31st October every year.

6. TDS Deduction and Return Filing

   • If paying salaries or professional fees, deduct TDS and file TDS returns (Form 24Q/26Q) quarterly.

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✅ C. Financial and Regulatory Compliance

1. Maintenance of Books of Accounts

   • Maintain accurate records of income, expenses, assets, donations, and grants.

   • Books should be audited annually by a Chartered Accountant.

2. Annual Audit

   • Mandatory if income exceeds ₹2.5 lakh or if 80G registration is obtained.

3. Utilization of Income

   • At least 85% of the income must be applied to charitable/religious purposes in India during the financial year.

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✅ D. FCRA Compliance (If Foreign Donation is Received)

If the trust receives foreign donations:

• Register under FCRA (Foreign Contribution Regulation Act) with the Ministry of Home Affairs.

• Maintain a separate FCRA bank account.

• File Annual FCRA Return (Form FC-4) before 31st December.

• Submit quarterly intimation of foreign receipts on FCRA portal.

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4. Important Statutory Deadlines

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5. Penalties for Non-Compliance

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6. FAQs on Trust Compliance

Q1. Is audit mandatory for all trusts?
Audit is mandatory if gross income exceeds ₹2.5 lakh in a financial year or the trust has 80G registration.

Q2. Can a trust invest in shares or mutual funds?
Yes, but only in the modes specified under Section 11(5) of the Income Tax Act.

Q3. Can a trust carry forward unutilized income?
Yes, by filing Form 10 before the due date, a trust can accumulate income for up to 5 years for specific purposes.

Q4. Can a trust pay salary to a trustee?
Yes, if authorized in the trust deed and not excessive. It must be reasonable and for services rendered.

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✅ Conclusion

Staying compliant with trust laws and tax regulations is crucial for maintaining the credibility, legality, and sustainability of a trust. From income tax exemptions to foreign contributions, timely filings and transparency in operations help the trust serve its purpose effectively and avoid legal hurdles.