A charitable Trust is a legal entity that can be set up by any individual or group of individuals to carry out charitable activities. The main objective of setting up such an entity is to provide the donor with tax benefits and also to avoid paying income tax on donations received from donors.
When a donation is made, the donor gets back only 10% of the amount donated as tax relief. However, in the case of a Charitable Trust, you get 100% relief on your donation. There are many other advantages that we will discuss in this article.
To form a Charitable trust in India, the applicant has to go through a process that registers his establishment as a charitable trust. If you want to know more about how to form a charitable trust, the legal experts at Vakilsearch can be your best bet. You will get expert help and assistance for the online trust registration process right from the comfort of your home. This will make the process easy and hassle-free for you.
What is a Charitable Trust?
A charitable trust is an irrevocable trust established for charitable purposes and in some jurisdictions is a more specific term than ‘charitable organization’. Charitable foundations enjoy varying degrees of tax benefits in most countries.
Some important terms in charitable foundations are the term ‘corpus’ (Latin for ‘body’), which refers to the assets that fund the foundation, and the term ‘donor,’ which designates the person who donates the assets to the charity.
Essentially, a charitable foundation is a way of setting up assets to benefit you, your beneficiaries, and the charity at the same time.
Charitable foundations can provide many financial benefits to people who own non-essential assets such as stocks or real estate.
A charitable trust is primarily a way of arranging your assets to benefit you, the relevant beneficiaries, and the charity at the same time. Such trusts can bring various benefits to those who wish to help the company through non-essential assets such as stocks or real estate.
Why Should You Form a Charitable Trust?
Setting up a charitable foundation can be a useful, multi-pronged way to leave a legacy.
It allows you to set aside money for charities and your beneficiaries, get certain tax benefits, and have a say in how and when your income is distributed throughout your life.
However, charitable foundations are not for everyone. On the one hand, they are an irrevocable trust, which means that once the trust is created, you generally cannot change the details of the trust.
Also, if you only donate a small amount to a charity, the cost of building trust may not be worth it. If so, consider making a donation or using a Donor Advised Fund (DAF).
One reason to choose a charitable foundation over a DAF is that a foundation allows you to create a larger legacy. For example, you can set up a trust that will continue to provide for many years after your death.
A trust can also provide almost complete control if the trust you set up contributes to a private foundation you also set up.
Who Can Establish a Charitable Trust in India?
In India, trusts established for social purposes and approved by the Income Tax Authority are not only tax-exempt, but donors of such trusts can deduct the number of donations to the trust from their taxable income.
India’s legal framework recognizes activities such as ‘helping the poor, education, medical assistance, preservation of monuments and the environment, and promotion of all other objects of public interest as philanthropy.
