Can a Trustee Take Salary from Trust Fund?

People often ask if a trustee can take salary/compensation from the trust fund. Find out what the relevant laws (Bombay Public Trusts Act 1950 and section 13 of Income Tax Act) have to say about it.

“Is it possible for a trustee to take salary / compensation / remuneration from the Trust Fund?” This is one of the most common questions asked by people in India who want to setup a public charitable trust. Running a trust is not an easy job and it may require a trustee to invest significant amount of time and energy. And some people feel that they should be get the compensation from the Trust Fund for the work they do fro the Trust. Most lawyers and CAs would straightway tell you that it is not allowed for a trustee to take any benefits (in the name of trustee salary, trustee remuneration or trustee compensation) from the Trust Funds. This however depends on what constitutes a benefit.

The first thing you must understand is that trusts are of two types: private and public charitable trusts.

Indian Trusts Act 1882 covers only private trusts and it specifically excludes public charitable trusts from its ambit. Most people think that the Indian Trusts Act 1882 applies to public charitable trusts as well. But that is wrong. In some states, public charitable trusts are governed by Bombay Public Trusts Act 1950. But in most states of India, there is no Act for governing charitable trusts.

Social work is important for a better society.

Social work is important for a better society.

Both Bombay Public Trusts Act 1950 and Section 13 of Income Tax Act state that the trustees can draw a “reasonable” compensation from the trust fund for the services they provide to the trust. Please note that being a trustee itself is not considered a service. So, lets try to understand what could be a defined as a service.

Lets assume, in a charitable trust, one of the trustees is a qualified Chartered Accountant –and if he is managing the trust’s accounts. In such a case he is eligible for a reasonable compensation for his CA work because  his work is saving the Trust from paying another CA’s fee.

“Reasonable” means that the compensation must not be higher than the prevailing average market rate. I would suggest that such a compensation should actually be a notch below the average (after all you’re supposed to be doing charitable work -so it’s better to put the least possible burden on Trust Funds)

If one or more trustees are taking unreasonable benefits from the Trust Fund –the Income Tax Department may refuse/revoke the allotment of tax exemptions under section 12A and 80G. If that happens all the donations/earnings acquired by the Trust shall become taxable.

For more information, you should contact the Commissioner of Income Tax (Exemptions) who has jurisdiction over your area. I hope this clarified the issue of whether a trust can take salary, compensation or remuneration from the Trust Fund.

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