It’s very well-known that educational Trust is a non – profit organization. Educational trusts are the holdings of the Trust under which the reserves can only be used for educational purposes. It should always strive for the higher academic performance and achievements of all students at all levels, particularly for those students who come from a very low-income class.
If we talk about the trusts document, the Granter has the right to point out the title of a trustee and beneficiaries. Moreover, the trust certificate also describes the fact as “in what way the trust funds should get consumed.” Whenever the Trust fits to operate or at the appointed time, the Trust should be supported by the Granter by assigning property within it. In the cases where the Trust becomes operational, the trustees should control the assets of the Trust. Even, according to the terms/articles of the Trust, he must pay for the beneficiary’s education.
Documents Required for Educational Trust in India
- Draft a Cover Letter
- Duly Drafted Memorandum of Association
- Appropriately Drafted Articles of Association
- Drafted Affidavit for President (Notarised)
- Obtain NOC by the landlord and get Notarised
- Get the Authority letter with directives
- Get the Basic Checklist of Trust Registration
- Self-certified copies of the documents of the establishment of the institution
- Self-certified copies of the documents demonstrating implementation or alteration of the objects only if any
- A brief note on the activities and undertakings of the Educational Trust
- Proof of address about the Educational Trust
What is the motive behind creating an Educational Trust and how it works?
We are all aware that educational expenses do place a substantial burden on a family. Therefore, providing a child with the means to avoid the educational costs is undoubtedly an excellent opportunity for all. The Grantor receives blessings, respect and also feels better knowing that an asset is not being used on random materialistic luxuries, but to provide an education for all the deprived and eligible children of the society.
The Basic Terms under Educational Trust
- Granter is the person who assigns or transfers the property to create a trust.
- The beneficiary is the person who accepts/receives advantages from the Trust for a purpose.
- The trustee is the person who has the actual control over funds and property of the Trust. He can decide the usage of the funds in accordance with the applied terms and conditions.
- The terminology stating “Funding a Trust” means the Transferring or assigning a property that needed to be controlled by trustee of the Trust.
- The terminology indicating ‘Trust Fund” means property in the Trust accessible to the trustee to work as per the terms and conditions applied.
Things to Consider When Making an Educational Trust
Before planning to create an educational trust, you need to decide the terms and conditions of the Trust, which may include the following agendas:
- What will be the Commencing period of the Trust to take the things into effect?
- It will purely depend upon the needs of the Granter of the Trust. Whether it needs to get operational during the Grantor’s life (Known as a living trust), or at death (Known a testamentary trust).
- In cases where the beneficiary is not intending to get the trust funds until after the Granter’s death, then it perhaps makes sense to ensure that the Trust may go into effect after death.
- Consequently, by this approach, the Granter should not worry about the funding of the Trust. However, the issues related to the Gift Tax requirements might be considered.
- Who can be a Trustee of the Educational Trust?
- It is an authoritative requirement that when you create an educational trust, you need to choose who is capable of being the trustee. The trustee is the person who has the actual control over funds and property of the Trust. He can decide the usage of the funds in accordance with the applied terms and conditions. During the whole operational period of the Trust, the trustee is the one who controls the Trust. Particularly at an educational trust, the trustee will monitor and follow the terms of the Trust and pay for the beneficiaries’ education and tutoring.
- Any person who is capable of contracting can create an educational trust. Any individual, company sole, or corporate body who is accomplished of holding property and is able to contract can be ‘trustee.’
- Moreover, if you intend to create a testamentary Trust which takes place or effects after your death – in those cases, you need to decide the name of a trustee and a substitute. Conversely, if you create a living trust which takes effect during your lifespan, then you will most likely need to name yourself to be the “initial trustee,” and must decide concerning who will be your “successor trustee” after your death
- The point of fact means that naming the trustee will essentially consider who will be the finest person to manage and control the Trust after you depart from life. As said, the trustee needs to be someone you ‘Trust’ and should also be someone who is accustomed to you as well as beneficiaries needs and aspirations for the Trust. If determinants may be your spouse, major child, or the beneficiary’s parent.
- How to deal with the naming of Beneficiary?
- It will only depend upon whether you plan to fund the educations of more than one beneficiary or another way round. In such an instance, you also need to determine whether you want to create a separate trust or a single trust for it. If it is about only one trust, you need to adhere to the terms which can regulate how you want the trustee to divide the portion of Trust fund. Again, the question may hit your mind that whether each Beneficiary gets a set total or a part of it? It may also happen that you make a trust with chances that gets places trust funds in a joint meet leaving the trustee to determine who gets what- with adequate guidance from the terms associated.
- With this, trust gives the trustee flexibility to come across the unique requirements of each Beneficiary. This might be particularly valuable if the beneficiaries have very diverse needs or if their desires are not yet recognized. However, it emphasizes an extra burden on the trustee, and it could generate strife among the beneficiaries, and once the trustee decides to spend more or less on one beneficiary in comparison to another.
- What Category of Education should Trust Support?
You need to decide in your mind with a precise reason to what category of education the Trust should support Educational Trust. You need to be determined with the decision whether the beneficiary uses funds from your Trust to go to one or the other commercial school or medical school? Moreover, you need to ascertain about the trust funds be used to go to school on the basis of part-time – or online. You can use the Trust to govern for what type of education the trustee can practice with the trust funds. Regardless, it is elementary to understand that it will be stress-free for the trustee as well as for the beneficiary. Although you should remember, the most significant thing is that the Trust should provide the trustee with clear guidance as to what can and cannot be done by trust funds.
- What are the ways the trust may get end?
Eventually, if everything goes as intended, the Trust might end when all of the trust funds have been consumed on a good education for the beneficiary. Still, you’ll need to reflect upon some other potentialities as well. What can be done to trust funds if:
- What if the beneficiary never went to school as per condition?
- What if there is money left over later to the beneficiary finishes up the education?
- What if the beneficiary dies before the end?
As a result of this, in the relations of your Trust, you’ll be required to consider these situations and make strategies for them.
- Where the Responsibilities & obligations of Trustees are listed?
In general, the responsibilities, obligations, and powers of a trustee, are set down by the Indian Trust Act, 1882. Precisely, the duties and liabilities are ordered in Section 11 to section 30 of the said Act.
- Are there any Limitations set by CBSE / ICSE/State Board under the formation of Educational Trust?
There is no specific limitation has been set by the Educational Board of India. The only purpose is to endeavor any Educational Trust or Society to set-up Institutions for “school / Training/pharmaceutical/engineering” education for assistance to society. It should get provided with aims which have to mention in the Trust Deed or bye-laws. The Educational Trust should be of a ‘Non- proprietary’ so that it does not vest power in a single person or members of a species.
Read our article:Trust: Definition, Advantage, and Types
Benefits of Structuring Educational Trust as a Non-Profit Organization
There are two varied kinds of advantages you can reflect upon on structuring Educational Institutions as a Non-Profit Organization which are as follows:-
- The educational trust is no different than the other trust. Similarly, The Income Tax Act of 1961 presents an exemption to trust, which is formed for any charitable and beneficial objects. As the educational institution comes under the classification of charitable purposes, the educational trust will get exempted from contributing income taxes.
- Notwithstanding the above statement, the educational trust can get under the purview of Income Tax act if they surpass a few significant deadlocks. It can be if the income of the trust gets exercised for any charitable goals situated outside the territorial limits of India. It will nullify the picture from paying taxes only when the scenario comes under the customary or specific rules of the CBDT (Central Board of Direct Taxes).
- The educational institutions are also entitled to manage the income which gets generated through the trust, only if they meet the requirements provided under Section 11(2)- Rule 17 of the Income Tax Rules 1962 along with the Form No.10 also. Therefore, the income obtained from the trust can be sustained only under the conventions defined in Section 11.
- As stated, eventually, the donors of educational trusts are exempted from paying taxes for the donations made to the trust/Charitable institution. This understanding is particularly stated under Section 80G of the Income Tax Act of 1961.
- The managerial benefits are something you need to be very particular while exhibiting the same. It is because the profits are given to three types of trust, which are almost the same. The selection of business formation for the educational institution will primarily depend on the limit of control and management only.
- Indeed, trust mainly considered to be the most representative by nature among the three business structures available in the market. To support it, founders can execute control only if they have permanent posts in the department of managing committees and if they invest themselves in some limited powers during constituting of the preamble of the trust.
- Moreover, trusts can also be handled by an individual even though a board of trustees might be present and actively working. It is because of the bearing of trust deeds which allows all essential as well as useful decision delivering control to only a single individual. Accordingly, in the cases where the founder of the educational institution needs to maintain a significant level of power and managerial control on all sorts of the matter of the trust, in that case, we suggest that trust is favorable in such form of business arrangements.
What are the details associated with the Educational Institutions Exemption under the Income Tax Act?
- Exemptions on Government Educational Trust – The Educational Trust, which is entirely or considerably supported financially by the Central Government or the State Government, get exempted from payment of income taxes under section 10(23C) under with iii(ab) of the Income Tax Act. It is a result of which such educational trust/institutions are made to be in existence only and solely for educational objectives but not for carrying out any use of profit.
- Exemptions based on Annual Receipts: Furthermore, there are also other educational institutions that are eligible for income tax exemptions. Those are which get exempted from payment of income taxes specifically exist for education only. Still, the matter of fact is it should not for making any profit and whose annual income arrivals do not surpass Rs. 1 crore.
- Exemptions on Other Approvals: Precisely, an educational institution which satisfies to not to fall in the above stated two categories but has signed as signatories as well as approved by the prescribed Government for exemption, gets exempted from payment of income taxes. In such instances, you may count on for claiming exemption, and for that specific statutes need to be accompanied by educational institutions. Those requirements are given below as reference:-
- By acknowledging the rules of the land, the property needs to be held by a trust or must be designated as a legal entity by the competent authority.
- As stated above, the educational institutions must be for charitable purposes, which may be for general public convenience, etc. Moreover, no part of its income can perform for the satisfaction of the needs of any particular individual or the members of the family.
- The accounts of educational trust should duly get audited if the insufficiency arises.
What about the Removal of exemption?
- It is essential to know that the opportunities for the privilege of exemption from income taxes upon educational institutions are not constant by nature and purely subjected to change. The prescribed authority which had given the exemption reserves the right to withdraw such exemption if any of the following conditions arises:-
- In the matters which are prescribed by authorities have a specific reason to believe the guidelines under the Income Tax Act. If the income created by these educational institutions is not utilized for educational purposes thoroughly, but are getting distributed for engaging on personal interests and luxury in the name of charitable purposes, then the prescribed authority reserves the power to eliminate such exemptions.
- Nevertheless, there is a due process of law before such approval gets eliminated. The short-Comings gets treated by giving the opportunities of being heard too, which also can get termed as a quasi-judicial rule of process. Whatever may be the kind of educational institution; all of them must file returns and prepare their accounts to be audited by a Qualified Accountant. They must provide such an audited report in the prescribed returns form and duly drafted Checklist too.
A significant increase of the educational trust has been observed in recognition of the educational sector of the land. Hence, establishing up an educational trust and such institutions as a Non-Profit Organisation is the most proper fit for implementing education to the public, and it’s utility. In this regard, it needs to be considered as a ‘service to the community,’ since most of the features of this educational trust is relatively gentle and prosperous by genus. It is because as it all depends on the measure of managerial control that the founders want to hold over the educational institution/trust.
Moreover, because the educational institution created as a Non-Profit Organization, it can avail all the advantages provided to it by the Centre or the State Government. Estimating the assurance of success, the founder of the educational institution needs to concentrate more on performing top-quality educational services reasonably than focusing on achieving profit ends.