Public cum private trust

A trust is usually either public — for the benefit of the public at large, such as a charitable or religious trust — or private, for named, ascertained beneficiaries. The workbook also describes a hybrid: a public cum private trust, where a part of the income is applied for a public purpose and a part goes to a private person or persons.

The tax treatment follows the split exactly. The portion of income going to a private person is assessable as a private trust, and is not exempted from income tax — the trust does not get to claim the public trust's exemption over the whole of its income just because part of it serves a public purpose.

The workbook also gives a route by which the hybrid structure can resolve itself into a fully public trust: if the private beneficiaries renounce their rights to their share of the income, which they are entitled to do under Section 58 of the Indian Trust Act, the trust's entire income then becomes applied to the public purpose, and it can be treated as a fully public trust going forward.

Illustrative figures. The Sharma Charitable and Family Trust earns Rs 20,00,000 of income in a year. Under its trust deed, Rs 14,00,000 (70%) is applied to a public charitable purpose, and Rs 6,00,000 (30%) is distributed to two named private beneficiaries, the settlor's grandchildren.

Public portion, Rs 14,00,000    -> assessed as a public trust, exemption available
Private portion, Rs 6,00,000    -> assessed as a private trust, NOT exempt from tax

If the two grandchildren later renounce their right to the Rs 6,00,000 share under Section 58 of the Indian Trust Act, the entire Rs 20,00,000 would from then on be applied to the public purpose, and the trust could be treated as a fully public trust.

Chapter 15 (Tools for Estate Planning), section 15.6.4, "Types of a Family Trust," defines the public cum private trust immediately after distinguishing public trusts (charitable and religious) from private trusts (discretionary and specific). Expect a question on how the income split is taxed, and on the Section 58 renunciation route to full public trust status.

• Only the private portion of income loses the exemption — the public portion is still assessed and can still be exempt as a public trust's income.
• Renunciation under Section 58 must come from the private beneficiaries themselves — the trustees cannot unilaterally convert a public cum private trust into a fully public one.
• A public cum private trust is not the same as a Private Discretionary Trust or a Private Specific Trust — those are both wholly private structures; the hybrid specifically mixes a public purpose into the same trust.