Public trust are generally formed for charitable or religious purposes, and are not intended to do commercial activities. A public charitable trust is one, which benefits the public at large, or some considerable portion of it. While, the income from private trusts is available to specified beneficiaries and not to the public at large.
A charitable trust is defined to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Promotion of sports and games is considered to be a charitable purpose.
The public or private trust, differ in the process of their creation. In creating a charitable or religious trust, a formal deed or any other writing is not necessary, even if it involves immovable property. It may be created by use of words, but what is necessary is that there should be divestment of property on the part of the author or the settlor of the trust and should vest in the trustee, a third person.
Private trusts are created and governed by the provisions of the Indian Trusts Act, 1882
, whereas charitable trusts are beyond this Act. The Act applies to whole of India except when specifically amended by any State Government.
Trusts, whether public or private are subjected to taxation under the Income Tax Act,1961. It is the umbrella Act for all the matters relating to income tax and empowers the Central Board of Direct Taxes (CBDT) to formulate rules (The Income Tax Rules,1962) for implementing the provisions of the Act. The CBDT is a part of Department of Revenue in the Ministry of Finance. It has been charged with all the matters relating to various direct taxes in India and is responsible for administration of direct tax laws through the Income Tax Department. The Income Tax Act is subjected to annual amendments by the Finance Act, which mentions the 'rates' of income tax and other taxes for the corresponding year.