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What Are the Compliance Requirements for Trust Accounts?

If you have a trust or are a trustee, then these are some compliance requirements for trust accounts, which are necessary for a trust to fulfill.

You have many times heard of trust accounts and trustees. There are various rules related to the management of such accounts. Trust accounts are prevalent for holding properties for others. And many compliance requirements for trust accounts have to be fulfilled. 

Let’s have a better look at the understanding of the trust accounts. 

What are Trusts?

According to the Trust Act, 1882, a trust is defined as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or another and the owner” in section 3. In easier words, this article says that trust is just like a transfer of a property and its control to another person, but for the other person’s benefit. And if the author of the trust wants, he can also get the benefits from the trust. But the person to whom the trust is getting transferred will not get any benefit. 

According to Indian Trust laws, it is like a contract or a pre-planned arrangement. As the name suggests, a trust is a contract that a person (the author) creates to give ownership to a trustee for the benefit of the beneficiary. And the author can or can not be a beneficiary. It is just like a “Split Ownership”. According to this act, a trustee is the property owner in the legal documents, but a beneficiary is the owner of all the benefits from that property. A trustee is just similar to a guardian of the property. 

This property allocation act can be beneficial for the person who wants to give benefits to his loved ones or some other people but can not hand over the control over the property. So the person gives control to a person by making him a trustee, and he acts as a property guardian. And then, the author can legally transfer all the benefits to the person he wants. 

For example, let there be a wealthy father and her daughter who married a good man. Now, the father wants to give some property benefits to his daughter, but her daughter is not so good at property management, but her husband is good at it. So the father will create a trust and declare the confidence of that property (by becoming the author). His son-in-law can accept the confidence of that property and will become a trustee of that property. And all the benefits can be transferred to the daughter legally. This means the daughter will get all the benefits, and the property will also be safe. 

Get Registration To Trust Account

But in every trust, the person who is creating it is said to be its author, and he has to mention these four things in the trust:

  • The intentions behind creating the trust
  • What is the purpose of the trust?
  • Who are the beneficiaries of this trust?
  • And which property comes under this trust?
  • And he should also mention the transfer of the ownership of the property to the trustee.

Private Trusts: 

A private trust is created to benefit an individual or group. It has the main priority of providing the benefits of the trust’s property to the specific beneficiary, not the world. These are not for charity.

Public Trusts:

Public trust is created to benefit the public on a large scale. These trusts are charitable.

Annual compliances of the trusts

Every private trust in India must comply with the provisions of the Indian provision Act, 1882, the Income Tax Act, all the rules and regulations coming under it & other legislations. There are some general compliance rules for all the private trusts. Keep a check on these points:

  • Auditing of Accounts

Most private trusts are created for transferring benefits. Therefore, there will be income from that trust. So when the total income coming from the trust is getting above the threshold limit of non-taxable income, as defined in the Income Tax Act, 1961, the private trust must audit all its accounts with the help of a Chartered Accountant.

  • Filing the Annual Returns

When a Chartered Accountant properly audits all the accounts, then the report of the audit must be made. Form 10B should be used for the reports of the audit of the private trust accounts. And this audit report needs to be filed along with the filing of Annual Return of Income with the form ITR-7. 

  • Foreign Contribution Report

There are many trusts which receive contributions from foreign countries. If some trusts receive foreign contributions, the trust needs to prepare a Foreign Trust Report. And if the trust does not receive the foreign contribution, they have to submit a report for Foreign contributions.

So, when trust gets a contribution from Foreign countries, its report must be submitted to the Secretary, Ministry of Home Affairs, Government of India, New Delhi. The report should be filed with the Income and Expenditure Statement, the Payment Accounts and the Receipts, balance sheet, and annual account statement of the separate account used for foreign contribution-related transactions; a Chartered Accountant must have certified the report under due time. This report has to be submitted within nine months of the closure of the financial year. 

And if a trust does not get any foreign contributions, it must submit a ‘Nil’ report. And if the trust hasn’t gotten any such contribution in the last financial year, then the same procedure must be followed.

  • TDS Returns and Certificates

When trust is collecting Tax Deductions based on the payment of salaries to the managing staff and employees employed for the management purpose of the trust property, there are two steps to follow. Firstly, the TDS certificates must be furnished to the persons on whose behalf the Tax deduction has been collected. And within a month of the financial year’s closure, this must be done. And apart from this, the trust must file quarterly TDS returns.

  • Publications in Newspaper

If the trust’s annual income or the receipts generated by the trust’s property has exceeded the amount of One Crore Rupees, then it is also essential for the trust to publish the accounts in the newspaper.

  • VAT and Service Tax Returns

If a private trust exceeds the gross turnover limit, which is fifteen lakh rupees, then they have to file Value Added Tax (VAT) and Service Tax Returns per the format prescribed by the government. Every three months, VAT has to be deposited. 

  • GST Returns

If the trust gets GSTIN, it must file GST returns monthly or quarterly, per guidance.

Conclusion

You can also get in touch with the experts of Vakilsearch if you wish to know more about this topic. Our in-house legal experts can make all your legal processes easy and straightforward. 

Read more :

Trust registration online 

Section 8 certification

80G certificate for trust pdf

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