Anyone can create a trust in India for the benefit of close relatives. The Indian Trust Act, 1882 ('Act') governs the private trusts established in India. Read on to know more about the concept of trusts, parties involved in trust, types and taxation of trusts.
Let’s understand the concept of trust with the help of an example:
Mr X wants to pass his bungalow (property) to Mr Y for the benefit of his minor granddaughter. Mr X passes his property to Mr Y, because he reposes (has) confidence on Mr Y. This is nothing but the essence of a trust.
In simple words, a trust is nothing but a transfer of property by the owner (Mr X) to another person in whom the owner has confidence (Mr Y) for the benefit of a third person (Granddaughter of X).
The property doesn’t just mean real estate. It could be cash, shares or any other valuable asset. Further, the instrument by which this entire trust is declared/created is called “the instrument of trust” or the “trust deed”.
The Indian Trusts Act regulates trusts in India. It is applicable to the whole of India. But, it does not apply to the Waqf, mutual relations of the members of an undivided family determined by any customary or personal law and religious or charitable endowments. Public trusts in India are usually governed by state-specific legislation, such as The Maharashtra Public Trust Act, 1950.
The main objective is that the trust should be created for a lawful purpose. For example, if Mr X had stolen money from a bank and given it to Mr Y with the intention of giving the money to poor children then, in this case the trust itself is void as the very main purpose is unlawful.
So how do we actually understand as to whether the purpose is lawful or unlawful? The answer to it lies in Section 4 of the Act. As per Section 4, all purposes are said to be lawful unless it:
A trust may be created by:
Further, it also depends on the law in force that is prevailing at that particular point of time and the extent to which the author of the trust may intend to dispose of his property.
Section 5 of the Act states that with respect to:
From the purpose of income tax, private trusts can be categorized into two types.
Note 1:
Note 2:
Download the Indian Trusts Act pdf by clicking here.
Thus, a trust is legal arrangement between the owner of a property, who transfers the property to a third person (trustee) for the benefit of a close relative. The trustee handles and manages the property as per the trust deed. The Indian Trusts Act provides legal status to all private trusts in India.
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