Trusts in India serve diverse purposes, from family wealth management to public welfare, but their legal frameworks and operational nuances differ significantly. This article clarifies the distinctions between trusts governed by the Indian Trusts Act, 1882 (private trusts) and charitable trusts (public trusts under state laws), while addressing common misconceptions.

1. LEGAL FRAMEWORKS AND OBJECTIVES:

Private Trusts:

• Purpose:

Established for specific individuals, families, or non-charitable goals (e.g., succession planning, asset protection).

• Beneficiaries:

Clearly identified individuals or groups (e.g., family members).

• Governance:

Governed by the Indian Trusts Act, 1882, with flexibility in terms and conditions.

Charitable Trusts:

• Purpose:

Serve public welfare (education, healthcare, poverty alleviation).

• Beneficiaries:

The general public or an unidentifiable class (e.g., rural communities).

• Governance:

Charitable trusts are primarily governed The Charitable and Religious Trusts Act, 1920. However certain states have their own Act for this purpose.

2. ADVANTAGES AND DISADVANTAGES:

Private Trusts:

Advantages: Confidentiality, perpetual existence, and tailored asset distribution.

Disadvantages: Limited tax benefits and cumbersome to revoke once established.

Charitable Trusts:

Advantages: Tax exemptions, public credibility, and eligibility for CSR funds.

Disadvantages: Rigid compliance (annual audits, reporting) and dissolution challenges.

3. COMMON MISCONCEPTIONS:

Misconception 1:

All charitable activities are tax-exempt.

Reality:

This is true only in case of income tax act. In case of GST, only activities explicitly listed under GST law (e.g., healthcare, environmental preservation) qualify for exemptions.

Misconception 2:

Charitable trusts are governed by the Indian Trusts Act, 1882.

Reality:

The Charitable and Religious Trusts Act, 1920 is the one governing such trusts and, in some cases, state laws present in such cases.

Misconception 3:

Private trusts can access public grants.

Reality:

Only charitable trusts qualify for government funding and CSR contributions.