Does your trust deed cover the clause that the trust is irrevocable?
When applying for renewal of 12A (tax exemption) and 80G (tax deduction) in the online Form 10AB a question is asked under No. 6 “Whether the trust deed contains clause that the trust is irrevocable?” If one chooses ‘No’ the system does not take the application form forward. If one chooses ‘Yes’ and the trust deed does not have this line or clause, it would mean that the applicant has provided false information.
Confusion in terms
Unfortunately, many also seem to be confusing the ‘irrevocable’ clause with the clause pertaining to ‘dissolving’ or ‘winding up’ the trust. It is important to understand that the two terms are different.
Only trusts are affected
Fortunately, this is not an issue for organizations which are registered as a Society or as a Company licensed under Section 8. Only public charitable trusts are affected.
Understanding fundamentals of a trust
A trust, whether private (for family or employees) or public involves a transfer of property from one party (the author/s or Settlor/s) to another party (trustee/s) for the benefit of a third party (beneficiaries.)
Without the Settlor/s to create the trust with some property (movable or immovable), and the trustee/s to manage the property, the legal relationship and purpose of a trust cannot be established.
Thus, a trust requires a Settlor or Settlors, who create the trust by transferring assets (it could be movable or immovable property), and a trustee or trustees, who accepts the assets or properties to hold and manage them for the benefit of others (beneficiaries.) These two roles, along with the beneficiaries (the persons who receives the benefit), are the core components of a trust.
Most public charitable trusts in India are established with the Settlor or Settlors contribution a token sum of money, often as little as INR 500 to INR 5,000.
The required clause
An irrevocable trust clause is a statement within the trust deed that clearly indicates that once the Settlor settles the trust with some property (movable or immovable) he or she irrevocably transfers full and permanent ownership of that property to the trustees for furthering the purpose of the trust.
A public charitable trust deed’s clause for irrevocability could state: “The Trust Deed is and shall be irrevocable, and no part of the Trust’s assets or income shall revert to the Settlor, nor can it be amended or modified by the Settlor after its execution and registration”. Such a clause establishes that the trust, once created, cannot be altered or cancelled by the Settlor and that the property (sum of INR 500 or whatever it may be) is permanently dedicated to the charitable cause of the trust.
In other words, once the property (sum of INR 500 or whatever it may be) is given by the Settlor for settling or establishing the trust, it cannot be taken back by the Settlor.
Revocable Trusts?
A revocable trust is one which can be revoked during the lifetime of the Settlor and allowing him or her to regain control over the property and having the option to change the terms and conditions of the trust during his or her lifetime.
In contrast an irrevocable trust cannot be altered or regained during the lifetime of the Settlor.
Does absence of the irrevocable clause mean the trust is revocable?
If a trust deed does not specifically state that it is ‘revocable’ it should generally be presumed to be irrevocable.
This means the Settlor (the person who creates the trust) cannot easily amend, modify, or terminate the trust or reclaim the assets once they have been transferred to the trust.
To revoke an irrevocable trust, the Grantor or Settlor would need to satisfy specific statutory grounds or obtain consent from all legally competent beneficiaries, which is a legally complex process.
It would be ideal if the trust deed states: “The Settlor/s has/have set apart and handed over irrevocably to the trustee/s, a sum of INR 1,000 (hereinafter called the Trust Fund.)” However, the absence of this term does not necessarily render the trust revocable.
Interestingly the term ‘revocable trust’ or ‘irrevocable trust’ is not specifically defined under any provisions of the Indian Trust Act. However, Section 78 of the Indian Trust Act deals with the situations in which a private trust can be revoked. A reading of section 78 would help us understand the eventualities or conditions in which a trust can be classified to be a revocable trust. There is no other section that deals with an irrevocable trust.
Thus, one could construe that unless a trust is not specifically classified as a revocable trust, it would automatically or by default be classified as an irrevocable trust.
Dissolution clause
The dissolution or winding up clause should not be confused with the ‘irrevocable trust’ clause.
Typically, the dissolution clause should state the following: “This trust shall remain irrevocable. However, in case the trust at a future date, for whatever valid or compelling reasons may have to be wound up or dissolved and if upon the dissolution of the trust, there remains after the satisfaction of all its debts and liabilities, any property and assets whatsoever, the same shall not be paid to or distributed among the settlors, trustees or members of the trust (if any), but, shall be given or transferred to some other public charitable trust or society or any institution established for public charitable purpose.”
Conclusion
If your public charitable trust does not have the clause that the trust is irrevocable, it could hinder processing of your renewal application for tax exemption and tax deduction.
With the deadline (unless an extension is granted by CBDT) of 30th September 2025 fast approaching there may not be enough time for trusts not having this clause to register a ‘Deed of Amendment’ or in States like Maharashtra file an application under section 50A(1).