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The article analyses ownership of trust property under the Indian Trusts Act and its implications for FEMA. A trust is not a separate entity and cannot own property; instead, the trustee is the legal owner solely in a fiduciary capacity, holding the property for the benefit of beneficiaries. Beneficiaries do not own the trust property but possess a beneficial interest, which is transferable and treated as a distinct form of property. Supreme Court decisions confirm that a trustee’s ownership is limited to administration, while beneficiaries are the real owners in substance. For FEMA purposes, settlement of property into a trust is treated as a gift from settlor to beneficiaries, not trustees. Accordingly, FEMA applies wherever any party (settlor, trustee, beneficiary) or the property is outside India. Transfers must comply with LRS limits, overseas investment rules, and RBI permissions. RBI has clarified that whatever is permissible directly to a non-resident can also be done through a trust, subject to the same restrictions.
INTRODUCTION
Under FEMA, all current account transactions are permitted except where specifically prohibited or regulated. All capital account transactions are prima facie prohibited except where specifically permitted.
APPLICABILITY OF FEMA:
