Legal Compliance Checklist for Charitable Trusts in Mumbai

Charitable trusts form the backbone of most social and community development programs in a city as bustling as Mumbai. Trusts are also playing a big role in other fields such as education, health, poverty and the like. Yet with increasing regulation and donor scrutiny, being on the right side of the law has never been more critical. It is not simply a matter of avoiding fines and lawsuits, but rather key to restoring public trust and showing prudence, necessary if you would like to remain attractive to the awarding of grants and tax-break eligibility. In Maharashtra, the legal framework is largely statutory, and trusts operating in the state are governed by the Maharashtra Public Trusts Act and the Charitable Commissioner. In this blog, we provide a comprehensive legal compliance checklist for charitable education trusts in Mumbai that guides you through each step, from registration and tax exemption to filing requirements. It also lists steps for effective governance and transparency that the trust must be aware of to ensure it runs effectively.

Constitution and First Enlistments

To establish a charitable trust for education in Mumbai, you must meet several basic legal requirements.

1. Trust Deed Registration

The Trust Deed is the primary document of the trust, which outlines the intent and objects of the trust, the names of potential beneficiaries, the method of funding the trust, and any restrictions or obligations associated with the trust.

Where registration is mandatory, it must be registered under the Indian Trusts Act, 1882, and the Maharashtra Public Trusts Act, 1950, with the Sub-Registrar of Assurances. Major provisions include the irrevocability of the trust, its purposes, the powers of the trustee, and the process for dissolution.

2. Registration with the Charity Commissioner

All educational trusts in Mumbai, Maharashtra, are required to be registered under the Maharashtra Public Trusts Act, 1950 (MPTA), with the Charity Commissioner of Maharashtra.

This includes Form Schedule II, Trust Deed, identity proof of the Trustee, asset statement, and affidavit. A PTRN is assigned after signing up successfully.

3. PAN (Permanent Account Number)

It is essential to apply for a PAN if it is mandatory to quote it on any financial transaction or income tax return.

4. TAN (Tax Deduction and Collection Authorisation Number)

However, if the trust is responsible for TDS deductions on payments such as salaries and professional fees, then a TAN is required.

5. Registration at NITI Aayog Darpan Portal

For Govt grants, NGO Darpan Portal Registration is compulsory. This creates a unique ID and facilitates transparency when dealing with government offices.

Income Tax Act Compliances

Such trusts must comply with the provisions of the Income Tax Act to obtain the exemptions and ensure fiscal prudence.

1. Section 12A Registration

Under this registration, income is tax-free if at least 85% of it is used for charitable purposes in the same year.

To fulfil Section 12A, a charitable trust for education in Mumbai is required to prove that 85% of gross receipts are utilised for charitable purposes in a particular year. Here's how:

Keep books of accounts (ledgers, vouchers, bills) as may be necessary.
Please note that a Chartered Accountant is auditing an income and expenditure statement.
Furnish the Audit Report (Form 10B) with ITR.
The IT Department will have to gather the remaining income and invest this balance within five years from the submission of Form 10 if 85% utilisation is not achieved within a year.
Keep separate accounts for restricted donations or corpus funds.

The unused portion may be treated as the trust's income if the claim of utilisation is not proven.

2. Section 80G Registration

Donors will receive an income tax exemption for their contributions with this registration. It's dynamite for fundraising. Reference is further made to the Commissioner of Income Tax (Exemptions).

3. ITR (ITR-7) for the Annual Gross Income Statement

Education trusts in Mumbai are required to file ITR-7, even if there is no taxable income, every year. If a trust's income exceeds the basic tax exemption, an audit by a Chartered Accountant is compulsory. Filing is typically required by September 30.

4. TDS Compliance

Suppose a charitable trust for education in Mumbai is paying salaries, professional fees, rent, and other expenses. In that case, it may be necessary to deduct TDS and remit it to the government, as well as file TDS returns every quarter.

5. Foreign Contribution Regulation Act (FCRA)

In the case of foreign donations, an educational trust in Mumbai must register under the Foreign Contribution (Regulation) Act, 2010. It must operate an exclusive FCRA bank account and file an annual return detailing the receipt and utilisation of foreign aid.

Compliances Under the Maharashtra Public Trusts Act (MPTA)

Once the education trust in Mumbai is formed, it must comply with the state's guidelines.

1. Annual Accounts & Audit

All trust bodies are required to maintain accurate books of accounts and undertake an audit by an expert, preferably a Chartered Accountant. The audit shall be conducted within six months after a fiscal year ends.

2. Filing of Annual Accounts (Form 10/10A)

The charitable trust for education in Mumbai must file Form 10 or 10A with the Charity Commissioner's Office by September 30 every year.

3. Change Reports (Form III)

Any change in the Trustee (s), registered office, trust purpose(s), or bank account(s) shall be notified in Form III within 90 days of such change.

4. Record of Property (See Schedule I)

Trusts also have to maintain a list of all movable and immovable assets specified in Schedule I and update that list with any changes.

5. Public Access to Records

The records of a charitable trust for education in Mumbai are open to public examination.

Other Relevant Compliances

Not including income tax and trust-specific laws, additional laws may apply depending on the trust's operations and the number of employees.

1. Goods and Services Tax (GST)

GST will apply to charitable trusts for education in Mumbai, only in some instances:

If the trust is involved in any form of business (such as renting property, running a canteen, coaching classes, or organising events) that results in an aggregate turnover of ₹20 lakhs or more (₹10 lakhs in special category states), it will need to obtain GST registration.
Nothing applies to specific religious or public services, such as yoga or skills training under a government program, or for individuals with low incomes.
If the trust earns money from sponsorships or ticketed events, that income is taxable under GST.

To assess liability, the trust must:

Review total taxable revenue.
Examine whether there is any exemption under Notification No. 12/2017 – Central Tax (Rate).
Keep separate books for charitable vs. commercial activities.

You may face penalties and tax charges and be ineligible for specific government programs if you fail to register on time.

2. Professional Tax

If a charitable trust for education in Mumbai has staff or income exceeding a threshold, it must register under the Maharashtra Professional Tax Act.

3. The Shops and Establishments Act

If the education trust in Mumbai has an office or employees, it must be registered. It relieves the employer of the burden of keeping track of labour laws regarding hours of work, leave, and wages.

4. Compliance with Employee-related matters

EPF (Employees' Provident Fund): If the trust has 20 or more employees, it will be mandatory.
ESI (Employee State Insurance): For Trusts with 10 or more employees earning less than the wage.
Labour laws: Trusts must comply with laws regarding minimum wages, payment of gratuity, and other labour-related regulations.

5. Data Privacy Laws

Suppose the education trust in Mumbai is holding or processing any personal data (of beneficiaries, donors, employees, etc), in that case, it should ensure compliance with data protection principles and anticipate new Indian data privacy legislation.

Governance and Best Practices (Over and Above Legal Mandates)

Compliance is not just a matter of adhering to the law — it is also a matter of cultivating credibility.

Monthly Board Meetings: Document decisions for transparency.
Transparency: Publish audited financials and annual reports online.
Conflict of Interest Policy: Implement and Strongly Protect Against Abuse of Funds or Power.
Morally Funded: We won't pressure you with guilt-inducing images or misleading fundraising tactics.
Control Structure: Provide financial flow checks and balances.
Legal review to periodically seek the opinion of legal advisors to audit the areas of non-compliance.

Results of Violations of the Mumbai Public Charitable Trusts Act

The consequences of violations can be severe:

Deregistration of trusts by the Charity Commissioner for repeated violations.
Refusal of the renewal of 12A/80G, taxing donations and loss of credibility.
Substantial penalties, such as interest or fines from the Income Tax Department or GST authorities.
Bank accounts can be frozen due to FCRA violations or failure to file returns.
Prosecution of trustees for their "wilful default" or for acting dishonestly in managing the assets.
Donor confidence and funding loss have an impact on their operations and sustainability.
Reputational harm that may lastingly tarnish the trust's reputation.

Proactive compliance isn't only a legal prophylactic — it's a reputational protection.

Conclusion

Running a charitable trust for education in Mumbai is not just about good intentions; it involves sheer hard work, including legal, financial, and operational compliance. From trust deed registration, income tax returns, GST, and FCRA to various statutory duties relating to its employees, every compliance is essential for building credibility as well as sustainability. Transparency, particularly in compliance with Section 12A and annual auditing, fosters public trust and donor confidence.

By avoiding non-compliance, not only are penalties or deregistration mitigated, but the trust's image is also protected. With legal peace of mind, trusts are in a position to focus on what matters most: serving communities and bringing about meaningful change in society.

FAQs

Do we need to renew 12A and 80G registrations after a specific period?

Yes. Under the Income Tax Act, following recent amendments, it is now compulsory for all trusts to reapply for their 12A and 80 G registrations every five years. They must apply online through the Income Tax Portal.

Can a charitable trust registered in Mumbai operate outside Maharashtra?

Yes, it can work pan-India; however, for primary operations in another state, local registration or branch reporting may be necessary as per the laws of that state.

What is the consequence on trust if it does not file an audited account to the Charity Commissioner?

Failure to file can result in penalties and legal notices and may also lead to the suspension of the trust's registration. The Charity Commissioner can also initiate the inquiry proceedings.

Is it legal for trustees to pay themselves from the trust?

Yes, provided the deed of trust allows and approval is obtained from the Charity Commissioner. Compensation must be fair and reasonable and not intended to generate a profit.

How do you open a trust to receive donations through a UPI transfer, card, or wallet payment?

The trust should have an enrolled PAN, a functional bank account, and a payment gateway or donation platform (if applicable) at the time of registration. Donations must be receipted and accounted for to ensure transparency.