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.
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Society is charitable organisation and is formed by seven or more people.
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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 |
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Pan card of all the members of the proposed society
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Advantages |
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Various Financial and other assistance shall be available for education, birth of baby, Unemployment, sickness and medical expenses etc. |
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Disadvantages |
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Tax implications |
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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. |
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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. |
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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. |
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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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