INTRODUCTION
The Non-Governmental Organisation (NGO) “Darpan” database maintained by Niti Aayog reports that as of December 2024, India has approximately 2.65 lakh active NGOs, including about 1.3 lakh (49 percent) registered societies, 1.12 lakh (42 percent) trusts, 22,000 (8 percent) Section 8 companies, and 400 (1 percent) other entities.1These figures evidence the growth in the philanthropy sector in India. It must be highlighted that, given the sector is not completely organised, the data represent only registered entities, and the actual numbers could be higher.
This brings up important questions about the sector, such as governance, funding and regulatory restrictions. Considering that charities are regulated under the concurrent list in the Constitution of India, that is by the central government as well as the state government, there is a lack of uniformity in the law regulating them. This article critically examines the legal landscape of public trust in India with a focus on public charitable trusts and religious trusts. Such trusts are governed by various legislations, including central laws such as the Religious Endowments Act, 1863, the Indian Trust Act, 1882, the Charitable Endowments Act, 1890, the Charitable and Religious Trusts Act of 1920, the Income Tax Act, 1961, the Foreign Contribution (Regulation) Act, 2010, as well as various state-specific laws.
The research delves into the intricacies of regulatory compliance, as well as procedural and bureaucratic obstacles faced by public trusts, particularly those under the oversight of state Charity Commissioners. It further provides for tax implications on religious and charitable trusts and examines the legal framework of domestic and foreign funding. In this context, this article advances to provide a comparative analysis of public trusts and other vehicles of charity in India, such as Section 8 companies and societies. Next, it analyses the governance challenge faced by public trusts with a case study on the intrusive enactment in the state of Andhra Pradesh. The article then comments upon the future of public trusts and the growing need for reform in India’s philanthropy sector.
HISTORICAL EVOLUTION OF CHARITABLE TRUSTS IN INDIA
The Indian systems of law evolved a concept of trust in the wider sense “of possession or dominion over property coupled with the obligation to use it, either wholly or partially, for the benefit of others than the possessor”.2 This wider concept of trust was an integral part of both the Hindu and the Muslim systems, which did not differentiate between equitable and legal ownership, unlike the English law. The concern was that while the Hindu laws were clear on principles, they were largely uncodified. In fact, till 1882, when the Indian Trust Act, 1882, for private trusts was introduced, the law on trusts was primarily judge made. In doing so, the English judges routinely relied on personal property law and principles of English equity to arrive at decisions.3
Unlike private trusts, the concept of public trusts in India originated from the management of religious endowments during colonial times.4 From the beginning, Hindu religious endowments were created through traditional pious gifts (dāna).5 In the absence of proper legislation governing such gifts, they were managed by local rulers in accordance with their customs.6 The growing cases of disputes due to loss of property forming part of the endowment and allegations of mismanagement of funds led the colonial administrators to get involved.7 They found it necessary to introduce codified legal frameworks drawn from trust law to provide clarity in rules for supervision and for the protection of endowments. The English law of trusts was used as a practical blueprint for regulating these endowments and consequently was adapted to the Indian religious and social context.8
As a result, colonial administration began recognising religious endowments as a kind of charitable trust and the doctrine of trusteeship was applied to the managers/heads of such endowments. This led to the enactment of various statutes such as the Religious Endowments Act, 1863, the Charitable Endowments Act, 1890, Charitable and Religious Trusts Act of 1920. However, the adaptation was complex considering the differing cultural context. For instance, English law focused on the settlor or the donor’s intentions, while the pre-colonial endowment customs concentrated on the wishes of the recipient.9 However, certain parallels in the pre-colonial and English law, such as the distinction between legal and beneficial ownership, are an example of harmonious integration of the laws.10 Over time, the trustees became central to the management and control of the public trust with supervision and support from government bodies, evolving into the current public trust system in India. This history reflects a unique blend of colonial legal influence and indigenous/religious governance structures that continues to influence the administration of charitable and religious trusts today.
VEHICLES FOR CHARITY
Article 19(1)(c) of the Constitution of India gives a right to each citizen of India to organise groups or unions. While there are various ways of organising such a group, non-profit organisations are traditionally organised as trusts or societies or Section 8 companies. Each vehicle (be it a trust, society or a Section 8 company) is subject to its own set of compliances with various statutes, has its own distinct features, advantages and disadvantages.
In choosing a vehicle, one may consider factors including the objective, level of regulatory compliance, administrative oversight, and geographical location. Each option leads to its own set of nuanced implications. For instance, in Maharashtra, societies can be established for the promotion of literature, science or the fine arts or for charitable purpose and not for religious purpose.
Trusts as a vehicle for charity
Generally, there are two types of trusts in India, that is private trusts and public trusts. Private trusts are trusts for the benefit of an individual or a distinct group of individuals and are regulated by the provisions of the Indian Trusts Act, 1882. Public trusts are created for the benefit of an uncertain and fluctuating body of persons who cannot be ascertained at any point in time, for instance, the public at large. 11
A public trust, when created for charitable purposes, is a charitable trust, and when created for religious purposes, is termed a religious trust.
Public charitable trusts can avail tax exemptions under the Income Tax Act, 1882, due to their public purpose, while subsisting stringent government intervention and answerability. In contrast, private trusts are subject to less accountability standards but simultaneously forego the enjoyment of tax benefits.12
In addition to the Religious Endowments Act, 1863, the Charitable Endowments Act, 1890, and the Charitable and Religious Trusts Act of 1920, public trusts are governed by state acts. Various states such as Andhra Pradesh, Bihar, Maharashtra, Madhya Pradesh, Orissa, Telangana, etc., have enacted their own legislations prescribing conditions and procedures for the administration of public trusts.13 These laws provide specific guidelines for the formation, registration and operation of public Trusts. Moreover, although the Indian Trust Act, 1882, codified the law on private trusts, it has influenced the public trust laws with its principles of fiduciary responsibility, management of trust property, and remedies of breach of trust assets.
Societies as a vehicle for charity
A society is defined as an association of individuals with a mutual agreement to deliberate, govern and cooperate with each other for a communal purpose. Usually, societies are formed to promote charitable causes, including education, culture, arts, etc. and are not focused on making profits.
The Societies Registration Act, 1860 (SR Act) is a central legislation governing the registration of, inter alia, literary, scientific and charitable societies. In addition to the SR Act, societies formed and registered in the respective states have to follow the applicable state laws in this regard. For instance, societies registered in Andhra Pradesh are governed by SRA read with the Andhra Pradesh Societies Registration Act, 2001.
It is important to note that though religious purpose has not been specifically mentioned in the SR Act as a purpose for which a society can be formed under the SR Act, the Hon’ble Supreme Court in Hindu Public and Ors. v. Rajdhani Puja Samithee and Ors.14 has held that the words “charitable purpose” under the SR Act are to be understood to include religious purpose. Further, the Hon’ble Supreme Court in the said judgement also highlighted the observation of Income Tax Special Purposes Commissioners v Pemsel,15 wherein it was stated that charitable purpose could be grouped into four heads, that is (i) relief of poverty; (ii) education; (iii) advancement of religion; and (iv) other purposes beneficial to the community not coming under any of the preceding heads.16
While registration under the Societies Registration Act (SRA) is not mandatory, societies benefit significantly from formal registration. A registered society is recognised as a distinct legal entity, separate from its members, allowing it to function in its own name with a unique identity. Registration is a prerequisite for dealing with immovable properties in India; similarly, only registered societies can open a savings account with banks in compliance with RBI directions.17 These factors give rise to a society’s credibility, performance and accountability, making registration an indirect necessity.
Further, it is pertinent to note that a society formed primarily for charitable purposes may fall within the ambit of the definition of public charitable institution under the provisions of certain state public trust laws. Accordingly, the provisions of such public trust laws would also apply to and govern societies formed for charitable purposes in such states, and consequently, there may be a requirement for registration under both the relevant public trusts act and societies act. This has been discussed further in the section ‘Governance gridlock? A case study on balancing oversight and operational autonomy in charitable institutions’ of this article dealing with the governance gridlock in Andhra Pradesh charitable laws as a case study.
Section 8 companies as a vehicle for charity
Section 8 companies are governed by the provisions of the Companies Act, 2013, as amended from time to time and the rules and regulations that are made thereunder, administered by the Central Government through the Offices of Registrar of Companies in each state. To this extent, both central and state government authorities play equal and important roles in governing the Section 8 Companies.
Any person or association desiring to register a limited liability company under Section 8 of the Companies Act, 2013, may apply for incorporation, provided they satisfy the Central Government of certain conditions. Firstly, the company’s objects must include the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar objective. Secondly, the company must intend to apply its profits or any other income solely towards the promotion of these specified objects. Lastly, the company must not pay its dividends to its members. Similarly, any public limited companies adhering to the abovementioned conditions can also be registered as a Section 8 company, subject to the satisfaction of the Central Government.18 These conditions safeguard the purpose of setting up Section 8 companies, limiting them to charitable or social objectives without profit distribution to members. This in turn reflects their commitment to their cause and builds public trust. Section 8 companies, for all purposes, are prescribed the same rights and obligations as limited companies.19
It may be noted that since the term “person” is not defined under the Companies Act, 2013, reliance is placed on its definition under the General Clauses Act, 1897, whereby, “person” includes any company, association or body of individuals, whether incorporated or not20. A trust and its trustees would accordingly fall within the ambit of the term “person” and thereby act as a member of a Section 8 Company.
In terms of the applicability of the state public trusts acts to Section 8 companies, in our analysis, if one is to go purely by the provisions of some of these enactments (given how extensive and inclusive the definition of public charitable institution can be), some of the state public trust acts are wide enough to cover Section 8 companies within their purview. Having said this, in practice, we haven’t seen many Section 8 companies registering themselves under the provisions of the state public trusts acts.
FINANCIAL ASPECTS AND FUNDRAISING
Taxation and exemptions under the Income Tax Act, 1961
Public charitable or religious trusts are privy to certain exemption on the income earned by such trusts under the Income Tax Act, 1961 (“IT Act”). These benefits are subject to fulfilment of conditions prescribed in section 11, section 12, section 12A and section 13 of the IT Act. One of the main conditions is compliance with the definition of charitable purpose at all times as provided under section 2(15) of the IT Act. The term includes (a) Relief of the Poor; (b) Education; (c) Yoga; (d) Medical Relief; (e) Preservation of the environment (including watersheds, forests, and wildlife); (f) Preservation of monuments or places or objects of artistic or historic interest; and (g) Advancement of any other object of general public utility (provided it is not in the nature of trade/commerce for a fee or consideration).21 It has been clarified by the courts that charitable purpose includes religious purpose.22 It has also been clarified that trusts with composite objects relating to both religious and charitable purposes undertaking activities specific to particular community will not automatically be excluded from the exemption under section 11 of the IT Act. 23
Other compliance conditions include the requirement of maintenance of books of account and other documents in the form and manner prescribed, mandatory audits and registration under section 12AB granted for a period of 5 years for trusts. It is relevant to note that an exemption to a trust is generally available from the assessment year relevant to the previous year in which the application for registration is made. Thus, once registration is granted, the benefits of Sections 11 and 12 are available from the assessment year immediately following the financial year of application.24
Further, such an exemption to a charitable or religious organisation can be withdrawn if any of the provisions of Section 13 are violated despite compliance with the conditions of Sections 11 and Section 12. A trust losing its registration forfeits exemption under Sections 11 and 12 and becomes taxable under provisions of ordinary provisions at the maximum marginal rate or 30% basis the legal form of the Trust.25
Funding for charitable institutions
Charitable and religious trusts in India depend on multiple avenues of funding, including domestic donations as well as foreign contributions.
Domestic funding is achieved through contributions from individual donors, primarily through online crowdfunding platforms, contributions from high-net-worth families or individuals and contributions through corporate social responsibility,26 where qualifying companies are mandated to allocate at least 2 percent of their net profit to a cause.27
While domestic funds are generally governed by central and state tax laws, foreign contributions are governed by the Foreign Contribution (Regulation) Act, 2010 (FCRA) and rules thereunder. As per the FCRA, any person, including any trust, society, or Section 8 company, can accept foreign contributions provided it is registered with the Central Government or granted prior permission from the Central Government for specific donations or projects.28 FCRA registration with the central government is valid for 5 years and is renewable,29 while prior permission is valid for 3 years.30
For receiving a certificate of registration or prior permission under FCRA, public trusts must fulfil the following criteria: (1) it should be operational for at least 3 years, (2) it should spend a minimum of ₹15 lakh on charitable activities in the last 3 years, and (3) it should maintain well-defined charitable objectives demonstrated through documented activities.31 Post registration, it is mandatory for the trust to open an “FCRA Account” with the State Bank of India, New Delhi, to receive foreign funds32; apart from maintaining records and reporting regularly on utilization of funds. Additionally, it must cap its administrative expenses at 20% and shall not sub-grant to other entities.33 These measures are imposed by the government to stop terrorist funding by monitoring the transfer and end use of funds.
This year has brought about further amendments to the FCRA laws. The recent amendments have limited the term of prior permission to 3 years, which was earlier valid till the purpose for which it was received.34 Additionally, the organisation is now required to utilise such funds within a period of 4 years from such permission.35 This means that NGOs will now be forced to plan their projects with strict timelines and possibly let go of projects with higher gestation periods. The amendment to the FCRA Rules further requires detailed financial disclosures, including consolidated audited reports, activity statements per year, and certification by Chartered Accountants. They also require significant documentary disclosures at registration, renewal, and prior permission stages, including affidavits and declarations from key persons, to reinforce the tracking and accountability framework. Foreign contribution and its utilization is now required to be reported on a real-time basis, including for corpus donations that have remained unutilized.36 While this shows continuous efforts by the government to monitor the funds and ensure that the national interest is safeguarded and the provisions of the FCRA are upheld, smaller entities operating on a tight budget are disproportionately impacted by the compliance burden. In fact, in the recent past, due to the stringent compliances, many institutions have lost their FCRA licence, and also turned to domestic funders to meet their requirements.
These demanding compliances were put to the test before the judiciary, wherein in the case of Noel Harper v. Union of India,37 the judiciary upheld the constitutional validity of these laws, thereby validating the government’s objective of monitoring foreign funding.
GOVERNANCE GRIDLOCK? A CASE STUDY ON BALANCING OVERSIGHT AND OPERATIONAL AUTONOMY IN CHARITABLE INSTITUTIONS
An interesting case study is that of the regulations pertaining to charitable institutions in the state of Andhra Pradesh. All public charitable institutions and endowments, whether registered or not, other than Wakfs in the State of Andhra Pradesh are governed by the provisions of the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 198738 (“APCI Act”). This implies that all charitable trusts, Section 8 company and societies with a charitable purpose as defined would be governed by the APCI Act.
The consequence of an organisation coming under the preview of the APCI Act is the exemplified administrative control exercised by the government through the office of the Charity Commissioner. The Commissioner is appointed by the government39 and empowered with broad administrative powers over charitable institutions within the state. As per sections 3 and 7 of the APCI Act, the Commissioner is established as a corporate sole with perpetual succession and a common seal, enabling the office to sue or be sued in its official capacity. Under Section 8 of the Act, the Commissioner’s role encompasses general superintendence and control, including unfettered power to pass any order which may be deemed necessary to ensure that such institutions are properly administered and their income is utilised as per their objective. The Commissioner’s authority further extends to appointing40 or removing trustees,41 constitution42 or dissolution of the board of trustees,43 appointing the Executive Officer,44 and entering and inspecting properties as well as ordering audits.45 Further, the Commissioner, by virtue of various delegated powers to the trustees, board or the Executive Officer, can exercise additional control over the institutions. Lastly, the APCI Act explicitly states that unless expressly provided under the APCI Act, no notification or certificate issued, order passed, decision made, proceedings, or action taken or other things done under the provisions of the APCI Act, by the Government, the Commissioner, the Additional Commissioner or the Regional Joint Commissioner, the Deputy Commissioner or the Assistant Commissioner shall be liable to be questioned in any court of law.46
The above provisions reveal that the powers of the Commissioner/state government are wide and, in some cases, pervasive. This institutional status empowers the Commissioner with overarching supervisory authority over all charitable institutions (including Section 8 companies), ensuring continuous governmental oversight in the management of charitable and religious institutions. While on one hand, this model promotes transparency and systematic operations, the resultant bureaucratic bottlenecks cannot be ignored. The hierarchical approach, tedious compliance process and lack of autonomy of the trustees have resulted in cumbersome and delayed processes. This particularly becomes overwhelming for smaller institutions with limited capacity.
It is important to note that the judiciary has examined the effect of such provisions, including section 15, and held them to be valid.47 On the other hand, the court has also curbed the overarching powers of the legislators who attempted to overhaul the existing Board of Trustees across charitable institutions in the State without any justification.48
In view of the above, there is an urgent need for legal and policy clarity. It would be especially useful to attain clarity on whether Section 8 companies fall within the spectrum of purview of the Charity Commissioner and are subject to the same regulatory oversight as public trusts and societies. In our assessment, if Section 8 companies are clarified as being outside of dual regime, that is both under the Companies Act, 2013 and the relevant trust laws, they would present as an agreed vehicle for pursuing charitable or religious objectives.
COMPARATIVE ANALYSIS: TRUSTS VERSUS OTHER CHARITABLE VEHICLES
Table 1 shows a snapshot of comparison among Public Trusts, Section 8 Company and Society as a vehicle for charity:
Comparison among Public Trusts, Section 8 Company and Society.
| Description | Public Trust | Section 8 Company | Society |
|---|---|---|---|
| Regulation governing it | State-specific Act | Company’s Act, 2013 | Societies Registration Act, 1860 |
| Motive of creation | Public trusts are created for the benefit of an uncertain and fluctuating body of persons who cannot be ascertained at any point in time, |
|
Societies are created by a group of (minimum seven) people for charitable, literary, scientific, educational, cultural, or social welfare purposes. Religious societies are permitted except in some states (e.g., not allowed in Maharashtra). |
| Ease of formation | Relatively easy and less time-consuming. A public trust is mandatorily registered with the state government. | Relatively time-consuming and may take 3 to 4 months | Formation requires MoA, bylaws, and supporting documents, and there may be requirement for registration under the Public Trust Act of the state. |
| Legal status | Trust is not independent of its trustees. | A Section 8 company has a corporate existence independent of its members. Section 8 companies enjoy all obligations and privileges of a limited company. | A registered society has a separate legal status. |
| Limitation on liability | Liability of trustees is unlimited | The liability of the director and members is limited, and therefore, their personal assets will not be used in paying the debts of the company. | Members generally enjoy limited liability; personal assets are not typically liable for society debts. |
| Credibility | Reputable for non-profit activity, generally recognized by government and donors, but less credibility for high-value fundraising than Section 8 companies. | By virtue of the Central Government’s license, a Section 8 Company offers greater credibility than other non-profit organization structures. | Same as Public Trust |
| FCRA and FEMA standpoint | Can apply for FCRA registration and accept foreign donations. | Most preferred vehicle from the perspective of FCRA registration. Further, FDI in Section 8 Companies can be brought in subject to compliance with FEMA Regulations. | Same as Public Trust |
| Extension of business activities/objects to other states | It is not extended beyond the activities and objects given in the Trust deed registered under the specific state public trust act. If the Trust deed covers activities to be conducted in other states, then the Public Trust will require to get registered under the respective state Public Trust Act | Clause 4 of the Form INC 13 provided under Rule 19(2) of the Rules requires the Company to mention that – “The objects of the company extend to the …”. It follows that a Section 8 company’s activities may extend beyond the state in which it is registered. | Societies registered under the central act can operate in multiple states; significant activities outside the state of registration may require registration in those states. |
| Annual Compliance Requirement | If the Trust is registered in Maharashtra or Gujarat, the audited accounts and budget are to be filed with the respective Charity Commissioner’s office. | There is requirement of annual compliance by filing of annual accounts and return of the company with the ROC | Annual meeting required; filing of annual returns, submission of audited accounts to Registrar; report changes in governing body/bylaws. |
| Oversight | Most state laws make public trusts subject to supervision of Charity Commissioner’s office | Section 8 companies are under supervision of the Ministry of Corporate Affairs and the Registrar of Companies. | Same as Trust |
| Operational Challenges |
|
|
|
FUTURE OF CHARITABLE TRUSTS: GOVERNANCE, FUNDING, AND EMERGING CHALLENGES
India’s current regulatory model for public trusts is centred around governance and supervision. The recent amendments in FCRA and growing adoption of ESG principles indicate further focus on accountability and transparency in the future. However, while governance and compliance are indisputable for sector credibility, the harsh reality is that India’s public trust laws, built on colonial-era legislations, are outdated and out of touch with the evolving nature of philanthropy. The procedural rigour and oversight often translate into operational hurdles and stalled growth for entities at the grassroots level. As a result, in the past few years, the sector has faced administrative impediments, financial losses, and workforce reduction.49
The Supreme Court laid guidelines to regulate funds in the charity sector and suggested a new legal framework to regulate the sector.50 Activists, however, have called for broader sectoral reforms, some of which are stated in the 2004 report of the Sampradaan Indian Centre for Philanthropy,51 commissioned by the Planning Commission. The crux of the report was the simplification of procedures and promoting self-regulation alongside statutory oversight.52
The report further recommended a central public register of charities, similar to those in the UK and Hong Kong, to provide transparency and accountability. It also advocated for a comprehensive central law for non-profits, modelled on the UK Charities Act, administered either by a dedicated National Charities Commission or by an independent directorate. The report additionally recommended instituting an advisory body comprising representatives from the non-profit sector and professionals as an additional aide or guide for the administrators.53
In contrast to India, many countries have modernized their legal frameworks to better support philanthropic activity. For example, EU nations recognize “foundations” which are independent non-profit entities with a reliable source of income usually an endowment governed by a governing board.54 They apply their resources to public-benefit purposes either by supporting other charities or by operating initiatives directly. A unique feature of the European model is that founders generally enjoy discretion in creating the governance structure of their foundations built within the broader contours of the law.55 This is supplemented by external supervision by state authorities or courts to ensure adherence to the law without day-to-day involvement.56
Structures such as foundations harmonise accountability with autonomy, enabling charitable institutions to flourish without losing public trust. India would benefit from introducing a similar legal structure for a more balanced, contemporary and efficient structure for charitable organizations.
Another connected challenge in the sector is that of funding. A striking 72 percent of NGOs reported they had a funding deficit, largely due to erratic short-term funding and only 22 percent of NGOs reported having a corpus fund during the previous fiscal year.57 A key challenge in connection with funding lies in the lack of public trust. NGOs are often perceived as having a political bias, which discourages donations despite tax benefits. Reliance on foreign contributions has diminished under stricter FCRA norms, while domestic philanthropy remains limited and directed mainly towards well-known organisations.58 Non-profits also struggle with limitations in tools for impact measurement and limited communication strategies.59 Geographic and linguistic barriers, especially in rural areas, further restrict access to urban and international donors for smaller entities. To address these concerns, it is significant that the government becomes a proactive partner and eases its burdens in advancing national welfare objectives.60
CONCLUSION
In conclusion, this article has reviewed the legal and regulatory framework of public trusts in India, which are primarily used for charitable and religious purposes. It has highlighted their cultural significance, financial and compliance challenges, and compared them with alternate vehicles such as Section 8 companies and societies. While trusts remain central to India’s philanthropic and religious requirements, their future depends on meaningful governance reforms, growth in capacity, and improved access to funding.
Author Biographies
Anju Gandhi is a Partner at SNG & Partners. She specializes in Banking and Finance and Private Client Practice and is well-versed with RBI Regulations, FEMA Regulations, Labour Laws, Information Technology Laws, Real Estate Laws, and Corporate Laws. Email: anju_gandhi@sngpartners.in
Jahnavi Dwarkadas is an Associate Partner at SNG & Partners. She specializes in providing advice on succession planning including the implementation of business succession structures, family settlements, family governance and charity/philanthropy. She is also a core member of the firm’s Environmental, Social and Governance (ESG) practice group. Email: jahnavi_dwarkadas@sngpartners.in
Avni Gupta is a Principal Associate at SNG & Partners who assists the team in matters pertaining to banking law and private client practice. This includes advising families and businesses on estate planning, business succession structures, and family settlements as well as drafting of wills, gift deeds, trusts, and family settlement agreements. Email:avni@sngpartners.in
This article was originally published by Oxford Academic – Trusts and Trustees
