The revocation and dissolution of a trust involve legal and financial considerations that must be handled carefully. Whether the trust is being dissolved due to non-compliance, disputes, completion of purpose, or voluntary closure, it must follow the proper legal process to avoid penalties and legal disputes.

This guide explains the reasons, legal procedures, required documents, tax implications, and compliance requirements for dissolving a trust in India.

Understanding Trust Dissolution

A trust may be dissolved under the following circumstances:

• Fulfillment of Purpose – If the objective of the trust has been achieved.
• Lack of Funds – Inability to sustain operations due to financial constraints.
• Breach of Trust – Mismanagement of trust funds or failure to comply with laws.
• Mutual Agreement – Trustees voluntarily decide to dissolve the trust.
• Court Intervention – A legal directive for dissolution due to violations or fraud.

Once dissolved, the trust must ensure proper transfer of assets, clear outstanding liabilities, and file necessary legal paperwork to avoid disputes.

Legal Provisions Governing Trust Dissolution

The dissolution of a trust is governed by:

• The Indian Trusts Act, 1882 (for Private Trusts)
• The Societies Registration Act, 1860 (for Public Charitable Trusts)
• State-Specific Public Trusts Acts (like Maharashtra Public Trusts Act, 1950)
• Income Tax Act, 1961 (for tax compliance and transfer of assets)

Public charitable trusts have stricter regulations than private trusts and require approval from the Charity Commissioner or Registrar of Societies before dissolution.

Step-by-Step Process for Trust Dissolution

1. Resolution for Dissolution

• Trustees must pass a resolution with majority approval in a formal meeting.
• The decision must be recorded in minutes and signed by all trustees.

2. Legal Notice & Public Announcement

• A public notice must be issued in a local newspaper informing beneficiaries and stakeholders.
• If objections arise, they must be resolved legally before proceeding.

3. Approval from the Registrar or Charity Commissioner

• If the trust is registered under the Societies Act or Public Trust Act, permission from the Registrar of Societies or Charity Commissioner is mandatory.

4. Settlement of Liabilities & Transfer of Assets

• All outstanding debts, employee dues, and legal obligations must be cleared.
• If any assets remain, they must be transferred to another registered trust or charity (as per trust deed).

5. Filing for Tax Clearance

• A final audit and tax filing must be conducted.
• Apply for a No Objection Certificate (NOC) from the Income Tax Department to confirm compliance.

6. Cancellation of PAN, GST, and 80G Registration

• PAN and GST numbers must be surrendered through the respective portals.
• If the trust had 80G certification, it must be revoked by filing with the IT Department.

7. Submission of Dissolution Documents

• Final documents, including the trust dissolution deed, financial statements, and clearance certificates, must be submitted to the Registrar.

Required Documents for Trust Dissolution

• Original Trust Deed & Registration Certificate
• Resolution Passed for Dissolution
• List of Assets & Liabilities
• Audited Financial Reports of Last 3 Years
• Public Notice & No-Objection Certificates from Creditors
• Approval from Charity Commissioner (if applicable)

Tax Implications of Trust Dissolution

• Capital Gains Tax – If assets are sold, the trust may be liable for capital gains tax.
• GST Closure – Trusts with GST registration must file a final GST return.
• Income Tax Clearance – A final ITR must be filed, mentioning the closure of trust.

Failure to comply with tax laws can result in penalties, asset seizures, or legal action.

Common Challenges in Trust Dissolution

❌ Disputes among trustees and beneficiaries
❌ Objections from tax authorities or creditors
❌ Pending lawsuits or unresolved liabilities
❌ Non-compliance with state-specific trust laws

Proper legal assistance can help avoid these issues and ensure a smooth dissolution process.

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