Rule 302 of the Income-tax Rules, 2026

Where this rule sits

← Rule 301  ·  Rule 303 →

What this rule does

The rule imposes three conditions on the fund's structure. Sub-rule (1) requires the fund and the trust to be established in India. Sub-rule (2) requires the trust to have at least two trustees, with a proviso that a company as defined in section 2(20) of the Companies Act, 2013 shall not be appointed as a trustee without the prior approval of the approving authority. Sub-rule (3) requires the trustees of the fund to be resident in India, and provides that any trustee who leaves India permanently shall vacate his office.

Each condition is about where the fund is and who controls it, not about how it invests or what it pays out.

Why it is there

A fund whose trust or trustees sit outside India would put the money and the people answerable for it beyond easy reach. The rule keeps both here: the fund and the trust established in India, and the trustees resident in India, with automatic vacation of office on permanent departure so that a trustee cannot remain on paper after leaving. The requirement of at least two trustees prevents a single individual holding the fund alone, and the proviso subjects a corporate trustee to prior approval rather than banning it.

Who it applies to

• The fund and the trust through which it is held
• The trustees of the fund
• A company as defined in section 2(20) of the Companies Act, 2013 proposed to be appointed as a trustee
• The approving authority, whose prior approval a corporate trustee requires

The figures, and what each one turns on

What this means in practice

Two of the three conditions are continuing, not one-time: residence under sub-rule (3) has to hold throughout, and the consequence of failing it is automatic — a trustee who leaves India permanently vacates his office, which can drop the trust below the two trustees sub-rule (2) requires and needs a replacement appointment. A corporate trustee is not forbidden, but the approval must be prior, so an appointment already made cannot be regularised by approval afterwards, and the company meant is one as defined in section 2(20) of the Companies Act, 2013. Sub-rule (1) requires both the fund and the trust to be established in India; establishing the trust here while the fund sits elsewhere does not answer it.

An example

A fund is held by a trust established in India with two individual trustees resident here. One of them emigrates permanently. He vacates his office under sub-rule (3) at that point, leaving a single trustee, so a further trustee has to be appointed to meet the requirement of at least two in sub-rule (2). If the trust wishes to appoint a company as the replacement trustee, the prior approval of the approving authority is needed before the appointment.

Where you meet this rule

You meet it in the trust deed and the record of trustees produced when a fund's approval is sought or reviewed, and again whenever a change of trustee is reported.

The words themselves

What people get wrong

• Reading "at least two trustees" as exactly two. Rule 302(2) sets a minimum.
• Appointing a company as trustee and seeking approval later. Rule 302(2) requires the prior approval of the approving authority.
• Treating a trustee's permanent departure as something to be regularised. Rule 302(3) makes him vacate his office.
• Establishing the trust in India while the fund is elsewhere. Rule 302(1) requires both the fund and the trust to be established in India.