Comparative analysis of Trust, Society, and Section-8 Company

Comparative analysis of Trust, Society, and Section-8 Company

 

Comparative analysis of Trust, Society, and Section-8 Company                                                                    

 

Particulars

Trust

Society

Section- 8  Company

Meaning

Trust is an NPO and is formed for Charitable purpose. It is governed by the Indian Trust Act 1882.

                            

 

Society is charitable organisation and is formed by seven or more people.

                                                                 

It is also an NPO and is formed for promoting Charitable purpose. It is governed by the Company Act 2013. It is formed under the license granted by the govt. without adding the word public or private to its name.

Essential requirements

  • Trustee
  • Beneficiary
  • Trust property or the subject matter of Trust.
  • Settlor of Trust
  • Object of the Trust
  • Trust Deed

Pan card of all the members of the proposed society

  1. Residence proof of all the members of the proposed society. The following documents can be considered as valid residence proof:
  • Bank statement
  • Aadhar Card
  • Utility Bill
  • Driving License
  • Passport
  1. MOA (Memorandum of association)
  2. AOA (Article Of Association)
  3. Covering letter mentioning the objective and the purpose for which the society is being formed
  4. A copy of the proof of address where the registered office of the society will be located along with an NOC from the landlord if any has to be attached.
  5. A list of all the members of the governing body has to be given along with their signatures.
  6.  A declaration has to be given by the president of the proposed society that he is willing and competent to hold the said post.

 

 

  1. There must be Minimum of two shareholders;
  2. There must be Minimum of two Directors (Directors and shareholders can be the same person);
  3. At least one of the Director shall be the  resident in India;
  4. There is No requirement of Minimum capital
  5. The Income-tax PAN is a mandatory requirement in case of the Indian nationals;
  6. Any one of the Identity Proof be it Voter ID/Aadhar Card/Driving License/Passport is required; Passport is, however, a mandatory requirement for the proof of identity in case of the foreign nationals;
  7. Any one of the Proofs of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement);
  8. The Registered Office address proof (that is the rent agreement along with latest rent receipt and a copy of the latest utility bill in the name of the landlord and a no objection certificate from the owner of the premises, in case of rented premises);
  9. In case the premises are owned by either the  Director and the  Promoters, any of the documents establishing the ownership such as Sale Deed/House Tax receipt etc along with the no objection certificate.

Advantages

  • Put conditions on how and when your assets are distributed after you die;
  • Reduce estate and gift taxes;
  • Distribute assets to heirs efficiently without the cost, delay and publicity of probate court.
  • Better protect your assets from creditors and lawsuits.

 

Various Financial and other assistance shall be available for education, birth of baby, Unemployment, sickness and medical expenses etc.

  • Tax Exemption
  • No minimum capital requirement
  • No stamp duty payable
  • Credibility as its clause of MOA and AoA are so strict that it cannot be amended without the permission of govt. Due to this feature it enjoys more public confidence.
  • No Stamp Duty required

Disadvantages

  • Trust can be costly to establish and maintain
  • Power of trustees are restricted by trust deed
  • Trust properties are not left to be enjoyed by real owners.
  • It sets norms and thus curbs individual freedom to grow.
  • Society uses coercive methods for compliance of social norms.
  • Coercion can be physical and mental, which is detrimental to the general health of an individual.

 

 

  • Profit can be applied for the promotion of main objects only. It cannot be used for the promotion of any other anxiliary object.
  • Dividend are not allowed to be members.
  • No Remuneration shall be paid to a member whether it is a servant or employee.

Tax implications

  • CGT (Capital Gain Tax)- On the transfer of assets to a trust fund CGT may arise. CGT will arise depending upon the type of assets transferred. CGT will be assessed on the market value of the asset transferred. If the market value of asset is greater than value of the asset transferred than, no capital gain tax will arise. No capital gain tax will arise on the succession of the property to legal heir.

 

 

 It would be taxed at following slab rate:

Tax will be paid on income exceeding the basic exemption i.e 160000. If it is a educational institution then exemption u/s 10 upto the receipts of Rs 1 Crore is available If the Receipts are more than 40 lacs then audit report u/s 44AB is to be attached since it is outside the purview of Section 11

 

Section 8 company is completely exempt from tax, however certain compliances are required to be followed to enjoy the privileges.

 

Income Tax-Trustees will pay income tax at the standard rate of 20% and have no entitlement to credits, reliefs or allowances as apply to individuals.

In addition a surcharge of 20% applies to any income accumulated in the trust which has not been distributed within 18 months of the tax year in which the income arose.

If a trust beneficiary is absolutely entitled to the income (such a life tenant), then the trustees are not assessable to income tax on those funds. Revenue will assess the beneficiary directly.

 

 

 

Capital acquisition Tax- CAT applies to gifts and inheritances. No CAT arises on the transfer of assets to a trust, as the beneficiaries are not yet beneficially entitled in possession to the assets. Where a beneficiary receives an asset from the trustees, they are taxed as if the benefit was taken by the settlor/deceased.

 

 

 

Discretionary trust tax - Discretionary trust tax only applies where the settlor is dead and the principal objects (children of the settlor or children of predeceased child of settlor) are over 21.

There is an initial charge of 6% payable where the settlor is dead and on occasion that last principal object attains 21 years of age. If the trust is wound up within five years, a refund of 50% of the initial charge is available. If the trust is created by Will, and all of the beneficiaries are over 21, then the liability to discretionary trust tax arises on date of death, and the estate has four months to discharge this tax.

 

There is an annual charge of 1% per annum thereafter where the trust remains extant chargeable on the value of the trust on the 31st December each year. The charge will not arise on any assets vested in the beneficiaries, absolutely, for life or for a period of five years or more.

 

 

 

 

 

 

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