An Overview of Trust Annual Compliance

Introduction

A trust is a legally established entity whose owner is the Trustor and beneficiary is the Trustee, as defined in Section 3 of the Trust Act, 1882. The Indian Trust Act, 1882, governs and manages all registered trusts in India. The legal requirements must be followed by all Indian Trusts with registered status. In addition to the rules and trust registration, there are a few annual compliances for trusts that should be followed periodically to prevent fines.

What is a Trust?

A Trust is an arrangement in which the property is transferred to a Trustee by the owner, Trust, or Trustees. The property is transferred for the advantage of a third party. The Trust or a proclamation that the property should be held by the Trustee for the Trust’s beneficiaries transfers the property to the Trustee. The Indian Trust Act of 1882 establishes the legal framework for Trust in India. Trust registrations are generally done for specific purposes, such as asset protection, wealth preservation, or charitable giving.

Understanding the Annual Compliances for Trusts in India

The annual compliances that trust in India need to adhere to ensure a smooth and compliant operation.

1. Income Tax Returns (ITR)

Trusts in India are required to file income tax returns annually. Depending on the nature of the trust, it may need to file ITR-5, ITR-7, or any other applicable form. Trustees must gather all relevant financial information and ensure the accurate calculation of income, deductions, and tax liabilities. It is crucial to meet the prescribed deadlines for filing ITR to avoid penalties.

2. Form 10B

Trusts registered under Section 12A or Section 12AA of the Income Tax Act, 1961, need to file Form 10B. This form contains details about the trust’s activities, compliance with the provisions of the Act, and utilization of funds. Trustees should provide accurate information about the trust’s objectives, funds, and activities to demonstrate its compliance with legal requirements.

3. Audit Report

A tax audit is essential for trusts whose annual receipts surpass a certain threshold. An audit report that includes a statement of income and expenses, a balance sheet, and other pertinent financial information must be created by a certified chartered accountant. Along with the income tax returns, this report is required.

4. Trust Deed Amendments

Trust agreements should be frequently reviewed by trustees to make sure they are legally correct and consistent with the trust’s current goals. If any modifications are required, they should be made and registered with the relevant authority. It is essential to keep the trust deed updated to ensure legal compliance and prevent any future issues.

5. Maintaining Books of Accounts

Trusts must maintain proper books of accounts, including records of income, expenses, assets, liabilities, and donations received. Trustees should ensure that the books of accounts are accurate, up-to-date, and accessible for scrutiny if required. These records serve as evidence of the trust’s financial transactions and help in fulfilling annual compliance requirements.

6. Annual General Meeting

Trusts must hold an Annual General Meeting (AGM) to address their operations, financial standing, and other pertinent issues. Trustees should make sure that everyone is informed in advance and that meeting minutes are kept for record-keeping purposes.

Conclusion

Compliance with annual requirements is essential for trusts in India to maintain their legal standing and uphold transparency. Trustees and trust managers should be aware of the specific compliances, such as filing income tax returns, submitting Form 10B, obtaining audit reports, reviewing and amending trust deeds, maintaining proper books of accounts, and conducting the Annual General Meeting. By fulfilling these obligations diligently and on time, trusts can operate smoothly and demonstrate their commitment to legal compliance and transparency. It is advisable to consult with professionals or seek legal guidance to ensure accurate and up-to-date compliance with the annual requirements for trusts in India.

Suggested Read: All you need to know about compliance requirement of Trust in India