Question 1

Which law governs trust registration and does it differ by state?

Accepted Answer

Private charitable trusts are governed by the Indian Trusts Act 1882 at the central level, but states such as Maharashtra, Gujarat, Rajasthan, MP, and Karnataka have their own Public Trusts Acts requiring separate registration with the Charity Commissioner or Deputy Registrar. A trust intending to hold immovable property must register the trust deed under Section 17 of the Registration Act 1908. We identify the applicable state statute before drafting the deed.

Question 2

What is Section 12AB registration and why does a newly formed trust need it before 80G?

Accepted Answer

Section 12AB of ITA 1961 grants a trust exemption on income applied to charitable purposes under Section 11. Without it, all trust income is taxable at normal rates. Provisional registration requires Form 10A filed within 3 months of formation; final registration requires Form 10AB filed at least 6 months before the provisional period expires. An 80G certificate — allowing donors to claim 50% deduction under Section 80G(5)(vi) — is granted only after 12AB is in place.

Question 3

Can a trust receive corpus donations tax-free, and what documentation is required?

Accepted Answer

Yes. Corpus donations are excluded from income under the first proviso to Section 11(1) of ITA 1961 and fall outside the 85% application requirement. Each corpus donation must be in writing from the donor designating it as corpus, and the trust must maintain a separate corpus fund in its accounts. Anonymous donations exceeding Rs 1 lakh or 5% of total donations are taxable at 30% under Section 115BBC, so donor KYC records are mandatory.

Question 4

What happens if the trust cannot spend 85% of its income in the same financial year?

Accepted Answer

Under Section 11(1) of ITA 1961, a 12AB-registered trust must apply at least 85% of income to charitable purposes in India. Shortfalls can be accumulated for up to 5 years by filing Form 9A (notice of intention to accumulate) before the due date under Section 139(1) — October 31 for audit-liable trusts. Amounts not applied within 5 years become taxable. Where accumulation is for a specific purpose, Form 10 must also be filed.

Question 5

Is audit mandatory for a charitable trust and what is the penalty for missing it?

Accepted Answer

Under Section 12A(1)(b) of ITA 1961, a trust whose total income (before Section 11 exemption) exceeds the basic exemption limit must have accounts audited by a CA and submit the report in Form 10B along with ITR-7. For trusts receiving foreign contributions, Form 10BB applies. Failure to furnish the audit report attracts a penalty under Section 271B of ITA 1961 — 0.5% of gross receipts, minimum Rs 1.5 lakh, maximum Rs 10 lakh. Under ITA 2025 (TY 2026-27 onwards) the equivalent provision is Section 446.

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