Steps for Formation of a Charitable / Religious Trust in India

To establish a legally valid charitable or religious trust, follow these key steps under Indian law:

1. Define the Trust’s Purpose

✅ Charitable Trust: Must serve public benefit (education, healthcare, poverty relief, etc.) as per Section 2(15) of the Income Tax Act.

✅ Religious Trust: Must promote religious activities (temple/mosque/church maintenance, rituals, etc.).

📌 Note:

• Private trusts(for family benefits) do not qualify for tax exemptions.
• Political or commercial objectivesare not allowed.

2. Draft the Trust Deed

A trust deed is the legal foundation of the trust and must include:

Essential Clauses

✔ Name & Address of the trust

✔ Settlor (Author) & Trustee(s) details

✔ Objectives (charitable/religious purpose)

✔ Rules & Regulations (management, meetings, fund usage)

✔ Bank Account operation guidelines

✔ Dissolution Clause (how assets will be used if trust closes)

📌 Registration Requirement:

• Optionalunder the Indian Trusts Act, 1882 (but recommended).
• Mandatoryfor tax exemption (under Income Tax Act).

3. Choose Trustees & Settlor

✅ Minimum 2 trustees (no upper limit).

✅ Settlor (Author): Person who creates & funds the trust initially.

✅ Trustees: Responsible for managing the trust.

📌 Key Points:

• Trustees cannot misuse funds(Section 13 restrictions apply).
• Relatives of the settlorcan be trustees but must not benefit personally.

4. Register the Trust

(A)  Under Indian Trusts Act, 1882 (Optional but Recommended)

• Submit trust deedto the local Registrar of Trusts.
• Pay stamp duty(varies by state).
• Get registration certificate.

(B)  Under Income Tax Act (Mandatory for Tax Exemption)

• Apply for Section 12A/12AB registration(online via Form 10A).
• Submit:
• Trust deed (certified copy)
• PAN & address proof
• Audited accounts (if already operational)
• Approval time: 3-6 months.

📌 Post-2021 Update:

• Provisional registration(Section 12AB) is now valid for 3 years.

5. Open a Bank Account

✅ Required in the trust’s name (not personal account).

✅ Documents needed:

• Trust deed (registered copy)
• PAN card
• Trustee IDs & address proof
• Resolution for account operation

📌 Tip:

• Maintain separate booksfor donations, expenses, and investments.

6. Apply for 80G & Other Tax Benefits

✅ Section 80G: Makes donations to the trust tax-deductible for donors.

✅ FCRA Registration (if accepting foreign donations).

📌 Process:

• Apply via Form 10G(for 80G).
• Submit audit reports & activity proofs.

7. Compliance & Annual Filings

✅ ITR-7 (mandatory even if exempt).

✅ Form 10B (audit report if income >₹5 lakh).

✅ Form 10 (for income accumulation declarations).

📌 Penalties:

• Non-filing→ Loss of tax exemption.
• TDS defaults→ 30% disallowance.

Summary: Checklist for Trust Formation

Key Legal Considerations

🔹 No private benefit to trustees (Section 13).

🔹 Investments must comply with Section 11(5).

🔹 Anonymous donations >₹1 lakh are taxable.