Private Wealth 2024 Comparisons

All direct tax-related aspects fall under the Income Tax Act, 1961 (ITA), together with all applicable by-laws, rules, regulations, orders, ordinances, directives and the like issued thereunder.

Taxation for Individuals

As per the ITA, individuals are subject to tax in India based on their residential status in India. Individuals can be classified as:

• residents;
• non-residents; or
• resident but not ordinarily resident (RNOR).

An individual is considered to be tax-resident in India in any year if:

• the individual stays in India for a period of 182 days or more in a financial year; or
• The individual stays in India for a period of 60 days or more in a financial year and 365 days or more during the preceding four financial years.

In the case of an Indian citizen or persons of Indian origin (PIOs) who visits India during the year, or an Indian citizen who leaves India in any financial year as a crew member of an Indian ship or for the purpose of employment outside India, the requirement of having to spend 60 days or more is taken as 182 days.

However, in the case of an Indian citizen or a PIO whose total income (excluding foreign source income), exceeds INR1.5 million during the relevant financial year, the period of 182 days is reduced to 120 days.

A tax resident of India is considered to be RNOR if such a taxpayer:

• has been a non-resident in nine out of the ten financial years preceding the relevant financial year; or
• has not been in India for an overall period of 729 days during seven financial years preceding the relevant financial year.

Further, an Indian citizen or PIO (as previously discussed), becomes a resident of India upon exceeding 120 days’ stay in India (but does not stay in India for more than 182 days), then such person would also qualify as a RNOR.

While Indian residents are typically taxed on their global income, non-residents are liable to pay income tax only on India-sourced income. Any income which is received or deemed to be received in India or has accrued or arisen or is deemed to accrue or arise in India shall be considered as India-sourced income. RNORs are taxed on their India-sourced income and such foreign income which is derived from a business controlled, or a profession set up, in India.

Under the ITA, the income tax is levied under the following broad categories:

• salaries;
• income from house property;
• profits and gains from business and profession;
• capital gains; and
• income from other sources.

Income tax rates vary according to the age and applicable tax bracket of the taxpayer. There are two regimes for taxation: (i) new regime (default regime) and (ii) old regime. The current rates of the tax bracket for all individuals below 60 years of age under the new regime and old regime are as follows:

In the old regime (excluding applicable surcharges and cess):

• individuals who earned up to INR250,000 paid no tax;
• individuals who earned between INR250,001 and INR500,000 paid 5% of income in excess of INR250,000;
• individuals who earned between INR500,001 and INR1 million paid 20% of income in excess of INR500,000 plus INR12,500; and
• individuals who earned above INR1 million paid 30% of income in excess of INR1 million plus INR112,500.

In the new regime (excluding applicable surcharges and cess):

• individuals who earn up to INR300,000 pay no tax;
• individuals who earn between INR300,001 and INR600,000 pay 5% of income in excess of INR300,000;
• individuals who earn between INR600,001 and INR900,000 pay 10% of income in excess of INR600,000 plus INR15,000;
• individuals who earn between INR900,001 and INR1.2 million pay 15% of income in excess of INR900,000 plus INR45,000;
• individuals who earn above between INR1,200,001 and INR1.5 million pay 20% of income in excess of INR1.2 million plus INR90,000; and
• individuals who earn above INR1.5 million pay 30% of income in excess of INR1.5 million plus INR150,000.

Moreover, for a taxpayer whose total income exceeds INR5 million but is less than INR10 million, an additional surcharge of 10% of the tax is levied. For persons whose total income is more than INR10 million but does not exceed INR20 million, a 15% surcharge on income applies. For income exceeding INR20 million but not exceeding INR50 million, a 25% surcharge is leviable and for income exceeding INR50 million a 37% surcharge is leviable. However, for taxpayers opting for the new regime, the 37% surcharge is not levied – ie, surcharge has been capped at 25% for income exceeding INR20 million under the new regime.

The taxpayers additionally have to pay a health and education cess at the rate of 4% of the income tax and the applicable surcharge. Further, surcharge on certain capital gains income and dividends has been capped at 15%.

Further, there are no estate, inheritance or generational-skipping taxes in India. Additionally, there is also no separate gift tax which is levied in India.

Under the ITA, income of trusts registered for charitable purposes are exempt from tax subject to certain conditions. For updates on taxation on trusts registered for charitable purposes under the ITA, please see 10.1 Charitable Giving.

For taxation of private trusts, please see 3.1 Types of Trusts, Foundations or Similar Entities.

Under the provisions of the ITA, any transfer of a capital asset under a gift or a Will is exempt from capital gains tax. However, in order to prevent any misuse and prevent any income from escaping assessment, certain anti-avoidance provisions were introduced in 2017. The anti-avoidance provisions stipulate that any person who received money or property on or after 1 January 2017, for no consideration or for a consideration which is less than fair market value, then such difference between fair market value and consideration would be subject to tax under the heading “Income from Other Sources”. This was done to prevent the practice of receiving money or property without consideration or for insufficient consideration. Such anti-avoidance provisions were introduced in form of Section 56(2)(x) of the ITA. The term “property” under the said provision shall mean immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion and virtual digital assets.

Accordingly, if a gift was made to a third party, then it would be regarded as “income from other sources” which is akin to a gift tax and hence tax would be chargeable on such gifts made to third parties.

However, to provide benefit of tax exemption to genuine cases, inter alia, an exemption from taxation for gifts made to “relatives” was provided. The term “relatives” is defined under Section 56(2)(x) of the ITA. The following individuals would qualify as relatives for the purposes of ITA:

• in the case of an individual:
1. spouse of the individual;
2. brother or sister of the individual (or their spouse);
3. brother or sister of the spouse of the individual (or their spouse);
4. brother or sister of either of the parents of the individual (or their spouse);
5. any lineal ascendant or descendant of the individual (or their spouse); and
6. any lineal ascendant or descendant of the spouse of the individual (or their spouse); and
• in the case of a Hindu undivided family, any member thereof.

There are no tax planning tools available for stepping up of capital assets to their fair market value. Under the provisions of the ITA, a transfer of a capital asset pursuant to inheritance or Will is exempt from capital gains tax. Hence any capital asset received pursuant to inheritance or Will shall be tax exempt. Further, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired the said asset. For the purpose of computing the period of holding, the period shall be calculated from the date of acquisition by the previous owner from whom such property is received.

As discussed in 1.1 Tax Regimes, non-residents pay tax only on India-sourced income, hence they may set up trusts or alternative investment funds (AIFs) or other tax planning vehicles depending on their requirements in order to defer their income from a tax perspective. However, any such tax planning vehicle would have to be analysed separately on facts, to determine if they constitute a place of effective management in India or if they are subject to general anti-avoidance rules (GAAR).

Regarding real estate assets, the ITA seeks to tax (i) the annual value of the real estate assets, determined in a prescribed manner, under the head of “income from house property”; and (ii) gains arising from disposal of such assets, under the head of “gains or profit from business or profession” or “capital gains”, depending on whether the assets are held as capital assets or stock-in trade.

Income From House Property

The annual value of the property, determined in the prescribed manner, is taxed in the hands of the individual taxpayer at the applicable slab rates. Typically, it is not the rent recovered from a property (unless that is higher) which is subject to tax under this head of income, but it is the income yielding capacity of the property which is subject to tax (ie, the annual value of the property computed as per the prescribed methods), subject to certain conditions.

For the purpose of computing such income, self-occupied property and property utilised for the purposes of carrying on business or profession of the owner, which is chargeable to tax in India, are excluded.

Gains From Disposal of Real Estate Assets

Gains airing on sale of property held as capital assets, would be subject to capital gains tax in India. Broadly, capital gains tax implications arising from disposal can be summed up, as follows.

• If the asset (immovable property – eg, land and building) has a short-term holding period (ie, two years or less), then the applicable tax rate (excluding surcharge and cess) is ranging up to 30%.
• If the asset has a long-term holding period (ie, more than two years), then the applicable tax rate (excluding surcharge and cess) is 20%.

Where the real estate assets are held as stock-in-trade, gains arising from disposal of such assets would be subject to tax in the hands of the taxpayer, at the applicable slab rates.

Apart from tax on transfer of property, individuals are required to pay stamp duty on the instruments of transfer. The stamp duty rate can be fixed or variable (ad valorem), based on the value and location of the underlying property or asset forming the subject matter of the transaction. Stamp taxes on transfer of real estate are frequently significant; the rates depend on the location of the property, as this tax is levied at the state level. Several states, such as Maharashtra, Karnataka and Rajasthan, provide lower stamp rates for intra-relative transfers.

As previously discussed, there is no estate tax currently being levied in India.

However, fears of such potential estate tax do remain and continue to influence succession planning structures and outcomes. It is because of this fear that many people are creating discretionary trusts and then holding their estate through such discretionary trust. Discretionary trusts, in India, are taxed at the maximum marginal rate (MMR) – ie, approximately 42.74%. While this MMR is as per the old tax regime, the Finance Act, 2023 has reduced the surcharge rates under the new tax regime, thereby reducing the highest effective rate to 39%. Therefore, there exists an ambiguity as to whether to consider 42.74% or 39% (as per the latest amendments) as the MMR for taxation purposes.

India has, inter alia, undertaken the following initiatives to address real or perceived abuses or loopholes in the tax laws:

• India entered into an Inter-Governmental Agreement with the USA in 2015, which provides that the Indian financial institutions will provide the necessary information to Indian tax authorities, which will then be transmitted to the USA automatically.
• India amended the ITA to include provisions to mandate financial institutions in India to provide the tax authorities information about specified financial transactions. This was done in order to implement the Common Reporting Standards in India.
• India introduced provisions for Country by Country Reporting (CbCR) in order to introduce transparency in the reporting obligations of large multinational enterprises (MNEs). Under the CbCR, tax authorities gain visibility to the revenue, income, tax paid and accrued, employment, capital, retained earnings, tangible assets and activities of such MNEs.

In India, companies are mandated to maintain a register containing information of significant beneficial owners (SBO) – ie, shareholders who are individuals and themselves or together with other persons (including companies, limited liability partnerships (LLPs), partnerships, trusts, etc) hold 10% or more shares, voting rights, right to receive dividend in the Indian company or can exercise significant influence or control in the Indian company.

SBO Rules prescribe various tests to determine the SBO depending on the nature of the holding entity. This reporting is required irrespective of whether the SBO or the entity through which it holds the shares of the reporting company is in India or overseas. The SBO Rules make it mandatory for the company to keep its maintained SBO register available for inspection for its shareholders.

Succession in India is heavily influenced by culture and tradition. Being a culturally diverse nation, India’s succession regimes are linked to the religious communities the relevant citizens hail from. They are governed by the specific legislations or personal laws and customs. These play a huge influence on how individuals and families approach succession.

In India, the possibility of a Uniform Civil Code (UCC) being made applicable to all citizens, irrespective of their religious denomination, has increased and is currently a contentious political issue. The state of Uttarakhand, in northern India, became the first state to accept and implement its version of a UCC in February. In the recent past, various other states such as Gujarat, Assam, Uttar Pradesh and Maharashtra have echoed in agreement with Uttarakhand’s implementation of the UCC and have made statements of being in the process of following suit. Additionally, the BJP (the governing party in India) has also expressed consent for working towards implementing a national UCC, after consultation with various expert committees that have been formed to advise on the same.

At a more general level, until more recently, any discussion on succession planning was considered taboo in India (culturally perceived to be reserved for the “ultra-wealthy”) given India’s ultra-conversative social fabric – but this social norm has been changing drastically in the recent years. An increasing portion of the population, especially the younger and middle-aged section, is understanding the importance of estate and succession planning and is seeking professional help in order to set up adequate, sustainable inter-generational structures. As a result of which, India has seen a spike in individuals undertaking estate and succession planning. This has also led to the creation of a robust wealth planning and advisory ecosystem – eg, private banks, family offices, lawyers etc.

Corporate India continues to focus on building a robust governance by professionalising key managerial roles by inducting experts in the field who are not a part of the family into the family business.

Family businesses are seeking to strike a balance between keeping the blood lines close and triumphing a merit-based system. Recent years have also seen nuanced family splits by way of executing family settlement agreements, brand usage agreements and non-competes which aid in the seamless division of business operations.

The Indian foreign exchange regime restricts and qualifies the movement of capital assets overseas. Remittance of assets overseas from India – by both resident individuals and non-resident Indians (NRIs) is subject to regulatory controls imposed by the Reserve Bank of India (RBI).

With the growth of businesses and families on a global stage and the international presence of multiple family members, a huge number of families are opting to create an irrevocable discretionary trust or a grantor trust through which they hold their assets in order to save them from tax implications in multiple jurisdictions.

In a case where the parents are Indian residents and the children are tax residents in the US, the parents cannot transfer the property directly to the children as that would attract US tax on such assets, as the US charges a tax on global income in addition to inheritance and estate tax. In such a scenario, the parents set up an irrevocable discretionary trust in India with themselves as beneficiaries and the children as secondary beneficiaries after their death. Typically, such grantor trusts are not subject to tax in the USA while the primary beneficiaries are alive. Upon the demise of the primary beneficiaries, no probate or any regulatory approvals are required for securing the rights of the secondary beneficiaries to the trust property.

Overseas remittances by NRIs who receive distributions from India which are credited to their non-resident ordinary (NRO) accounts (ie, onshore Indian accounts held by NRIs) are governed by the provisions of FEMA. For most cases, such remittances are qualified and are subject to an annual limit of USD1 million out of their corresponding NRO accounts. Overseas remittances made by resident individuals out of their ordinary resident accounts are capped at USD250,000 per person, per annum, under the Liberalised Remittance Scheme. These varied thresholds dictated by residency status must be borne in mind at the time of undertaking the cross-border planning of succession and transfer of wealth.

Many Indian residents are also opting for structures under the new Overseas Direct Investments (ODI) regime introduced in August 2022, in order to make investments in offshore jurisdictions. This ODI regime has seemed to pave the way for Indian companies and LLPs in setting up corresponding entities overseas. As per this ODI regime, an approval for setting up such entity outside India is essential only if such approval is required under the host country’s laws, which simplifies the process for setting up a global family office for Indians.

Under the erstwhile regulations, Overseas Portfolio Investments (OPI) were not clearly spelled out. The new regulations have drawn a clear line of demarcation between ODI and OPI. Investment, wherein less than 10% paid-up capital and/or voting rights is acquired in a listed entity overseas is classified as OPI. It may also be noted that OPI is not subject to sectoral restrictions unlike ODI. The prevailing limit of ODI and OPI remains at 400% and 50% respectively of the investor’s net worth.

As a corollary to making overseas investments, various HNWI in India are attempting to set up their family offices in the Gujarat International Finance Tec-city (GIFT City) which serves as an International Financial Services Centre (IFSC) in India and functions as a free trade zone with various tax incentives enabling flow of finance, financial products, and services across borders.

GIFT City aims to facilitate onshoring of offshore transactions and provide financial services that adhere to international standards. More and more Indians are inclined to opt for GIFT City as the destination for establishing a global family office/family investment funds owing to the various perks such as business-friendly environment, tax exemptions, liberalised cross-border transaction services, and easy access to currency conversion facilities among others. GIFT City specifically permits family offices to pool money as a Family Investment Fund, or FIF, under the prevalent fund management entity regulations.

There is no forced heirship regime in India except in relation to Muslims, who are governed by Islamic laws, and residents of the state of Goa, who are governed by the Goa Succession, Special Notaries and Inventory Proceeding Act, 2012.

Under Islamic law, a Muslim cannot by a Will, dispose more than one-third of the surplus of his or her estate after payment of funeral expenses and debts. Testamentary dispositions in excess of such one-third limit cannot take effect unless the heirs consent to them, after the death of the testator.

However, this does not apply in the state of Uttarakhand after the implementation of UCC whereby the limitations on the portion of the property Muslims can allocate/dispose by way of testamentary disposition or to whom they can bequeath it has been done away with.

Goa has its own law influenced by its Portuguese history which governs succession to the estate of an individual domiciled or born in Goa. Residents of the state of Goa, regardless of their religion, cannot dispose more than 50% (which is automatically transferred to that deceased’s surviving parents). Further, in case the deceased is not survived by his or her parents, the other ascendants of the deceased will be entitled to inherit one third of the deceased’s estate.

Additionally, owing to Uttarakhand’s UCC, fathers have been recognised as Class-I heirs and are eligible to receive property by way of intestate succession in the state of Uttarakhand.

In India, any property which is self-acquired during does not become jointly owned property by virtue of marriage. Only ancestral property is treated differently.

Any property acquired during the tenure of the marriage is not regarded as jointly owned property amongst the spouses and the spouse who owned the self-acquired property could transfer such self-acquired property without the consent of his or her spouse. Self-acquired property is protected under the Hindu Law, and no one can claim a share in it without the owner’s consent. Even the Class I legal heirs of a person (including his or her spouse) who has acquired such property cannot claim a share in it during the owner’s lifetime. However, after the owner’s death, the legal heirs can claim a share in the property as per the applicable rules of succession. A person who owns self-acquired property has the right to dispose of it as per his or her wishes. The owner can sell, gift, or Will away the property to anyone he or she desires.

In June 2023, the Madras High Court, in an unexpected ruling, held that “homemaker” spouses shall also be entitled to an equal share of property purchased from their spouse’s income. No appeals have been preferred against this judgment as on date of writing this article and the potential impact of this ruling is unclear as currently such a stance has been taken by only one High Court and is not binding on any State/High Court, nor is there a Supreme Court ruling on this yet.

Portuguese civil law as applicable in the state of Goa recognises the concept of community property wherein both spouses are considered joint owners of the property acquired during the marriage.

The Uttarakhand UCC eliminates the distinction between ancestral and self-acquired property as outlined in Hindu Law. The Uttarakhand UCC is silent on the coparcenary rights established by the Hindu Succession Act, 1956. Consequently, same scheme of succession will apply to both ancestral and self-acquired property for Hindus. The limited protection afforded by the coparcenary system under the Hindu law will not be available under the Uttarakhand UCC.

Unlike other jurisdictions such as the USA and UK, India does not recognise the concepts prenuptial and postnuptial agreements. Such agreements are not legally tenable in India as the law considers such contracts against the public policy of India and thereby void under Section 23 of the Indian Contract Act, 1872. However, this position can be qualified subject to the provisions of the personal and customary law applicable to the parties and courts may enforce a pre- or post-marital agreement.

See 1.3 Income Tax Planning.

There is no estate or inheritance tax in India. Further, property received under a gift or Will or inheritance is exempt from capital gains tax. Hence, any property whatsoever can be passed down generations tax free via a Will or even intestacy.

As per the anti-avoidance provisions, gifts made to third parties would not be tax exempt. However, such anti-avoidance provisions would not apply to relatives as discussed in 1.2 Exemptions. A gift is tax exempted provided it is made to a person who qualifies as “relative” under the definition provided under Section 56(2)(x) of the ITA. However, whilst the definition of “relative” is wide and covers most relationships, few relationships, like in the case of gifts from nephew to uncle, are not covered under its definition. Hence, a gift which is not covered under the purview of the definition could be taxed.

India does not have a law governing the transfer or transmission of digital assets such as email accounts and there is currently no unified approach to their “inheritance” or access by heirs. Service providers have their own policy in dealing with digital property upon the death of the account holder. One should examine the policies of the relevant websites and services, based on which one may leave written wishes (including by way of Will) for their family on how they would want their digital material to be accessed and treated after their demise.

Trusts in India are based on the common law principles and are classified under two broad categories being:

• private trusts (for family inheritance or private purpose); and
• public trusts (religious or charitable purpose).

Further, under Indian taxation laws and the ITA, trusts can be either irrevocable or revocable and discretionary or determinate.

Trusts are not recognised as a separate taxable unit under the ITA. However, the ITA provides that, in the case of a trust, trustees would be taxed as a “representative assessee” of the beneficiaries – ie, the trustees would be taxed in the same manner in which the beneficiaries would have been taxed.

The taxability of the trustee depends on whether or not the share of the beneficiaries in the trust is determinate or known – ie, whether the trust is a determinate trust or a discretionary trust. In the case of a determinate trust (ie, where the name and share or interest of the beneficiary is known or determinable), the tax officer has the option to either assess the beneficiaries, or alternatively, the trustees. Thus, the income of trust may be assessed at the option of the tax officer, either in the hands of the beneficiary or in the hands of the trustee(s) as a representative of the beneficiaries. In the case of a discretionary trust (ie, where the share/interest of the beneficiaries is unknown or left to the discretion of the trustees), the trustee(s) would be liable as a representative of the beneficiaries, at the MMR as discussed in 1.5 Stability of Tax Laws.

Further, in the event a settlor transfers the property to a trust under such provisions that any part of the income or assets so transferred may be retransferred to the settlor, such a trust is treated as a revocable trust under the ITA. In the case of a revocable trust, the income arising to such trust may continue to be taxed in the hands of such settlor.

The ITA also provides for certain tax exemptions in the case of trusts registered for charitable purposes. For taxation on trusts registered for charitable purposes under the ITA, see 10.1 Charitable Giving.

India also recognises trusts governed by another jurisdiction’s laws and which are created for foreign persons. Transfer of assets or income to such trusts must be aligned with India’s exchange control regulations.

Trusts are widely recognised, respected and used as an effective tool of succession and ringfencing of assets in India. India recognises both – private as well as public trusts.

Notably, private trusts in India are governed by the Indian Trusts Act, 1882, (Trust Act) which primarily governs the rights and obligations of persons acting as settlor, trustees and beneficiaries of a private trust. Private trusts are a popularly chosen vehicle of succession and are established for holding joint family assets such as immovable property, shares of a family business, family jewels and so on. Members of the family are made beneficiaries of such family trusts in order to ensure a seamless inheritance of family owned property and avoid the hassle of obtaining a probate.

From a tax perspective, India has included provisions incorporating the GAAR under the ITA, with effect from 1 April 2017. As per the GAAR provisions, an arrangement is classified as an impermissible avoidance arrangement, if its main purpose is to obtain a tax benefit and the arrangement satisfies one of the following four conditions:

• creates rights or obligations not ordinarily created between persons dealing at arm’s length;
• results, directly or indirectly, in the misuse or abuse of the provisions of the ITA;
• lacks commercial substance or is deemed to lack commercial substance in whole or in part; or
• is entered into, or carried out, by means, or in a manner, not ordinarily employed for bona fide purposes.

Thus, if a trust has been set up for the purpose of avoiding taxes, then such a structure could attract the GAAR provisions and it may be disregarded to determine the ultimate tax effect.

The statutes governing public trusts are set out in 10.1 Charitable Giving.

When an Indian resident is a beneficiary in a foreign trust then that person is required to furnish details of their foreign assets in Schedule FA in their Income Tax Return (ITR). Schedule FA pertains to the disclosure of scheduled foreign assets of Indian residents to avoid tax evasion. Further, such beneficiary being an Indian resident, will be taxed on their global income which will include the income they receive from such trust as a part of their share as a beneficiary.

• As per the ITA, a transfer (including settlement or contributions to a trust) shall be deemed to be “revocable” if it contains – any provision for re-transfer, directly or indirectly, of the whole or any part of the income or assets to the transferor (settlor or contributor, in the case of a trust).
• In any way, gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the income or assets.

Thus, if the settlor retains any powers over a trust, even if the terms of the trust deed consider such trust to be an irrevocable trust, it shall be considered a revocable trust under the ITA. For instance, even if the settlor does not directly retain any unfettered powers over the trust property but has the right to exercise such powers subject to meeting certain contingencies (such as by obtaining consent of any named person), then such trust would be deemed to be a revocable trust. Accordingly, it is critical to ensure that no such powers are directly or indirectly retained by the settlor.

Further, the ITA provides that all income arising to any person by virtue of a revocable transfer shall be chargeable to tax as the income of the transferor. On the other hand, in the case of an irrevocable trust, since the settlor no longer maintains any control over the trust property, such settlor is not taxed on the income of the trust property. Despite this, revocable trusts remain a popular structuring choice amongst families in India for succession planning. This is because such a trust allows settlors to retain certain amount of control and oversight over their assets in order to ensure that interests of their family members are protected. Settlors will often retain the power to add or remove beneficiaries and decide in what proportion distributions are made.

Trust structures are undisputedly the most popular method for asset protection and offer beneficial governance mechanisms to Indian families with Indian residents and non-resident members. A key benefit of trusts is that such structures ring-fence assets from potential creditor claims or matrimonial claims. Any claim on one’s estate in the event of insolvency or any other dispute can be curbed by setting up a trust as that would entail relinquishment of control and ownership by the owner. By the virtue of such relinquishment, the assets held in a trust are safeguarded from being contested during litigation or claims from creditors. Trusts can be used for preservation of business assets as well as family wealth.

India is increasingly adapting to the usage of private business trusts which are created to make the process of business interest succession seamless. Such trusts hold promoter level shares and other shared properties. As from the public domain, more than 40+ trusts have been set up by promoter families of large, listed entities in the recent years for the purposes of holding shares belonging to such entities. Accordingly to recent reports by Fortune India magazine, approximately 24.90% of the cumulative net worth of the top 38 Indian billionaires is held by way of trusts, followed by Hindu Undivided Families as the preferred vehicles for holdings.

Interestingly, India has also started embracing the concept of family constitutions (also known as family charters) which are set up by the patriarch or branch heads of powerful business families which set out the family and business governance aspects and also eligibility criteria and the succession of the next-gen of the families entering into the family business.

Along with the aforementioned documentation, more and more companies have also started adopting family shareholders’ agreements which record the understanding between promoters/respective promoter branches qua their shareholding in an entity. Such shareholders’ agreements lay down the rights and obligations such as exit obligations, rights of first offer/refusal, voting rights, etc.

There is no applicable information in this jurisdiction with respect to the transfer of partial interest.

Inheritance of wealth by the mechanism of a Will can be subject to various forms of challenges. A Will can be challenged under the pretext of being not freely made and unjustly enriching one branch of the family as opposed to another. This is the most commonly prevalent type of wealth dispute in India, and a majority of India’s famous judicial backlog is derived from probate or family disputes.

Issues such as informal governance standards, desire for control and equal ownership in family run companies often lead to conflicts, allegations and lengthy court battles. The ideology of the next generation of brand heads of the business families is not always aligned, which also triggers disputes and disharmony which affects the day-to-day affairs of their business entities.

A substantial chunk of India’s business wealth stems from family businesses which have stood the test of time. While majority of family businesses have proven to be inherently resilient, more and more instances of the second/third generation heirs of major family businesses having diverse and unique outlooks towards governance have come to light. Further, there is an increase in the newer generation opting out of the family businesses to pursue their own paths.

As regards trusts, it is notable that in India, trust disputes are not very common and the ones that arise are often dealt within the family in a discreet manner, so that details are not available publicly.

Recent trends which have been driving trust-related disputes are:

• ambiguity in the terms of the trust, particularly in relation to tenure of the trust;
• lack of clarity regarding trustee succession;
• settlor’s conflicting wishes to trustees expressed in various documents; and
• possibility of tax implications if settlor and beneficiary are the same.

India, being a common law country, is guided by the principles of balance of equities. In light of the same, the mechanism of compensation would usually depend upon the facts and circumstances of the corresponding wealth dispute.

Parties which are aggrieved in wealth-related disputes typically opt for availing specific relief as they are more emotionally invested in the wealth – eg, in cases of ancestral property which has sentimental value attached to it for the heir. Broadly, when it comes to compensation, pecuniary damages are awarded in order to set off the loss borne by the aggrieved, if specific relief is not agitated or cannot be granted.

Given the sensitivity and privacy concerns also involved in wealth-related disputes, alternative dispute resolution mechanisms are becoming increasingly popular in India for resolution of such disputes, and more and more families are opting for mediation rather than agitating matters in courts. Majority of family disputes are settled by way of adopting out of court mechanisms of mediations and negotiations which aid in keeping the integrity of the family unit intact and ease the process of a seamless separation or settlement, as the case may be.

Arbitration is also being popularly explored as the chosen avenue for family and wealth dispute resolution due to a number of advantages, such as, flexibility, privacy, ease in procedure, cost effectiveness and speedy resolution of such disputes. As families often like to keep disputes out of the Indian domain, Singapore-seated arbitration is emerging as a leading jurisdiction for Indian family disputes.

In India, the use of corporate trustees is common for private trust structures. In the last few years, a number of such service providers have been set up. While there is no specific legislation requiring corporate trustees have a higher standard of conduct as opposed to individual trustees, the companies offering trusteeship services are preferred in many cases due to their higher standard of conduct which include their approach and pragmatism in handling the affairs of a private trust.

The Indian Trusts Act, 1882 governs the liabilities and obligations of trustees. However, as regards a corporate fiduciary such as a corporate trustee, the role, functions, obligations, remuneration and liabilities of such a trustee are typically set out in the trust deed. Most trust deeds usually provide that a corporate trustee shall not be responsible for any loss, costs, charges, expenses or inconvenience that may result from the bona fide exercise or non-exercise of their discretion as long as such corporate trustee has acted and discharged its obligations bona fide, and has not acted with any mala fide intentions. Such clauses are common even for private family trusts where corporate trustees are not involved, and such clauses are important to provide comfort to the trustees.

It is worthwhile to note that wealth management companies are the most commonly preferred corporate trustees in India who also aim to invest the trust funds for an annual fee.

In India, the doctrine of lifting of a corporate veil applies to a company and is also acknowledged by the judicial forums. The Companies Act, 2013 allows the judicial forums to pierce the corporate veil to identify the officer in default or the person committing the fraud and accordingly levy fines and punishment.

There are no specific legislations that apply to companies who offer trusteeship services to private trusts. Such corporate trustees are bound by the provisions of the Trust Act and the terms of the relevant trust deed, and other generally applicable Indian law.

Typically, a portion of the trust property desired by a settlor of a trust is used by a corporate trustee for the purpose of making investments or curating a portfolio. Such investment theory is not different from a typical modern portfolio consisting of high yielding stocks and mutual funds.

In India, there is no embargo on trusts holding the shares of a company having an active business. However, there are some reporting requirements for trusts holding ownership beyond certain specified thresholds.

Domicile

Domicile is relevant in India for the purpose of succession to the estate. In India, domicile has an impact on the succession to movable property.

As in the UK, domicile in India depends on duration of stay and intention. For instance, if a person is stuck in India due to travel restrictions or any other reason, and if such person did not intend to stay in India, then they will not become domiciled in India.

Residency in India

Residency in India can be determined on two counts.

Residency under the Foreign Exchange Management Act, 1999 (FEMA)

This stipulates that any individual who has been residing in India for more than 182 days during the course of the preceding financial year or a person who has come to or stays in India (i) for or on taking up employment in India, or (ii) for carrying on a business or vocation in India, or (iii) for any other purpose in such circumstances as would indicate his/her intention to stay in India for an uncertain period, is regarded as a resident under FEMA.

If an individual does not meet the residency parameters contained under FEMA, such an individual would be considered an NRI under FEMA. An NRI faces certain restrictions in terms of acquiring real estate in India as well as acquiring certain other asset classes such as equity shares. For instance, an individual who is an NRI under FEMA cannot purchase or acquire agricultural land in India.

Tax residency

Please see 1.1 Tax Regimes for details.

Citizenship

The primary provisions governing citizenship in India are contained in the Citizenship Act, 1955 (Citizenship Act) which provides for various methods of acquisition of Indian citizenship being:

• citizenship by birth;
• citizenship by descent;
• citizenship by registration;
• citizenship by naturalisation; and
• citizenship by incorporation of a territory.

Moreover, under the Citizenship Act, those who are a citizen of another country, but were a citizen of India at the time of or were eligible to become a citizen at any time after the commencement of the Constitution, can become an overseas citizen of India (OCI) by obtaining an OCI Card as per the prevalent guidelines contained in the Citizenship Act and underlying rules.

There is no applicable information in this jurisdiction regarding expeditious citizenship.

In India, private trust covers the structure of creating a secure future for a special needs dependent. Through the private trust, the parents can choose to manage the child’s affairs as they wish to. It also ensures that the legacy left for the special needs child is managed to provide for lifetime care and needs of special children or adults with disabilities. Though a trustee manages the affairs, they never own the trust assets which bring a fiduciary nature when a trust is functioning. This helps in addressing concerns of the parents when they are no more.

There is no restriction in the Trusts Act as to who can set up a family private trust. Parents, grandparents or legal guardians can set up a trust for the special needs child’s future. It is not necessary for the settlor to be a trustee of the trust. Usually, individuals who are trusted members or friends of the family are appointed as trustees of the trust set up for the benefit of a special needs individual.

Under Indian law, guardians can be appointed under different laws.

• The Guardians and Wards Act, 1890.
• The Rights of Persons with Disabilities Act, 2016.
• The National Trust Act, 1999.
• The Mental Healthcare Act, 2017.

The Guardians and Wards Act, 1890

The Guardians and Wards Act, 1890 is a secular act which provide the laws for guardianship to all communities irrespective to their religions and prescribes the whole procedure of appointing the guardians by court. The act authorises the District Court or any other court of the ward to appoint a guardian for a minor. The guardian takes care of the minor, minor’s property or both.

Special Situation of Persons With Autism, Cerebral Palsy, Intellectual Disability and Multiple Disabilities

Persons with autism, cerebral palsy, intellectual disability and multiple disabilities are in a special situation as even after they have reached 18 years of age, they may not always be capable of managing their own lives or taking legal decisions for their own betterment. However, in cases of cerebral palsy and multiple disabilities, there may be a need for only limited guardianship because of the availability of enabling mechanisms or scientific facilitations which enable such persons to function with varying degrees of independence.

Under Section 14 of the National Trust Act, the Local Level Committee headed by the District Collector is empowered to receive application for persons with autism, cerebral palsy, intellectual disability and multiple disabilities. It also provides for a mechanism for monitoring and protecting their interests including their properties.

Section 14 of the Mental Healthcare Act, 2017 also provides for a court of competent jurisdiction to appoint a nominated representative for the welfare of a mentally unfit individual upon application.

Guardianship Granted by High Courts

One can also approach the High Courts under Article 226 of the Indian Constitution (writ jurisdiction) for appointment of guardian. Recently, the High Courts in India have been granting conditional reliefs by exercising their powers under the special writ jurisdiction.

Evolution of “Living Wills” in India

In early 2018, the Supreme Court of India in Common Cause v Union of India and Anr. upheld that the fundamental right to life and dignity includes the right to refuse treatment and die with dignity. It was also held that such right can be enforced by way of an “Advance Directive” or a “Living Will” and laid down the guidelines for the recognition and the implementation of the same. While there was a constructive framework for execution of Living Wills laid down by said case, these guidelines were procedurally complex and needed to be revamped.

To address the procedural hurdles, the Supreme Court of India revamped and modified the existing guidelines laid down in 2018 on 24 January 2023, on an application made by the Indian Society of Critical Care Medicine. These guidelines would be followed and accessed by the general public until a proper law comes into place.

Several simplifications have been made in the context of decision making by the concerned medical board for implementation of a Living Will, steps leading to withdrawal of treatment, establishment of digital health records and so on.

Implementation of a Living Will can ensure that the family members of the individual making a Living Will are not made to suffer and bear the financial costs and burden, to their dismay in future.

Under prevalent Hindu personal laws in India, there is no differential treatment for children born out of wedlock, adopted children, surrogate children or posthumously conceived children. Such children are regarded as Class I heirs of the deceased and therefore are not subjected to any disparity as far as inheritance to the estate of the deceased is concerned.

Under the Hindu Adoption Act, 1956, from the date of adoption, the child is under the legal guardianship of the new adopted parent(s) and thus should enjoy all the benefits from those family ties. This also means that this child, therefore, is cut off from all legal benefits (eg, property and inheritance) from the family who had given them up for adoption.

Surrogacy

Surrogacy in India has been recognised via the Surrogacy Regulation Act, 2021 (SRA). The SRA defines surrogacy as a procedure in which a woman bears a child for the benefit of the intended parents and permits altruistic surrogacy but outlaws commercial surrogacy. Altruistic surrogacy does not entail financial remuneration to the surrogate mother (in cash or in-kind).

According to the eligibility language in the SRA, only a woman who is a family or close friend of the couple would be able to become a surrogate. Further, only legally wedded couples can opt for surrogacy – therefore LGBTQ+ couples or couples in live-in relationships are not permitted to avail surrogate pregnancy arrangements at the moment.

Same-Sex Marriage

Presently, same-sex marriage is not a recognised form of legal marriage in India. In early 2023, the Supreme Court of India heard the arguments in Supriya Chakraborty v Union of India and other related petitions which sought legal validation of same-sex marriages in India and reserved its judgment in May 2023. The petitioners had sought a ruling by which the Special Marriage Act (SMA), 1954, which provides for a civil marriage for couples.

The Supreme Court after considering 21 petitions by same-sex couples and activists, ruled that the right to marriage was not a fundamental right under the Constitution of India and therefore declined to interfere and legalise same-sex marriage. This plea was the second step following decriminalisation of homosexuality by the Supreme Court of India in 2018. Section 377 of the Indian Penal Code, 1860 was struck down by the Supreme Court of India, which was a major victory for LGBTQ+ rights in the country.

While pronouncing the verdict on 17 October, 2023, the five judge bench of the Indian Supreme Court expressed that while discrimination against same-sex couples must end, it was for the legislature to decide on the legality of same-sex marriage in India.

Though all five judges accepted that it was time to end discrimination against same-sex couples, they failed to reach a consensus on giving queer couples the status of a legally recognised “civil union”, with a majority of three judges holding that any legal status to such a union can only be through enacted law.

Civil/Domestic Partnerships

Civil partnerships are not expressly conferred legal status in India. However, the courts have recognised the rights of adults to live together consensually. The law creates a presumption in favour of marriage and against concubinage when long-term cohabitation has taken place between the couple over an extended period of time.

In the context of the Hindu law, the Supreme Court of India has held that a child born out of void or voidable marriage (which may cover civil partnerships) is conferred the status of a legitimate child and is entitled to claim a share in self-acquired properties of their parents.

Live in Relationships Under the Uttarakhand UCC

The Uttarakhand UCC, while regularising live in relationships in the state of Uttarakhand, makes it obligatory for a man and woman, who are living in the state, regardless of whether they are residents of Uttarakhand or not, to submit a “statement of the live-in relationship” to the appointed official concerned. The said official, being the appointed Registrar may register the relationship, and a refusal to do the same must be accompanied by reasons.

Children born out of the live-in relationship “shall be legitimate”, and such children will enjoy same rights and benefits as he/she would from legally wedded parents. Uttarakhand UCC also mandates payment of maintenance, similar to marriage, in case the woman is deserted by her partner in a live-in relationship.

While charities are recognised and widely regarded in India, there is no single central legislation which lays down the law governing “charity” or “charitable organisations” in India. Charitable organisations can be set up under various laws, depending on the nature of the entity and the state in which the organisation is being set up.

Some of the central laws which govern public trusts are the Charitable and Religious Trusts Act 1920, the Religious Endowments Act 1863 and the Charitable Endowments Act 1890, while there are some state-specific laws like the Maharashtra Public Trusts Act 1950, Gujarat Public Trusts Act 1950, Rajasthan Public Trusts Act 1959 and Madhya Pradesh Public Trusts Act 1951.

The ITA provides that a charitable purpose includes, inter alia:

• relief of the poor;
• education;
• medical relief; and
• the preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.

There are many ways in which a person can undertake charity in India. All of the structures have more or less similar incentives and exemptions. The definition and governing law regarding the charities varies depending on type of structure set up for charitable purposes.

Income of charitable trusts and institutions, registered under the ITA, is exempt from tax subject to certain conditions such as:

• application of income for charitable purposes in India;
• filing of timely income-tax returns; and
• adhering with conditions set forth in the certificate of registration, etc.

Only trusts or institutions incorporated in India are eligible for the said exemption. Further, income of such trust or institution has to be applied wholly for charitable or religious purposes within India.

In order to encourage charitable giving, the donors making donations to charitable trusts or institutions registered under the ITA are allowed deductions for the amount of donations made by them, thereby reducing their taxable income. The deduction can be claimed up to a maximum of 50% or 100% of the donated amount, depending on the institution or fund to which the donation has been made.

A charitable organisation is usually formed by way of a trust, a society under the Societies Registration Act, 1860 or a company limited by guarantee under Section 8 of the Companies Act, 2013. The advantages and disadvantages of the forms are as follows.

Trusts

A trust is created when the author or the settlor of the trust sets apart some property for a charitable purpose so that the income can be devoted to fulfilling the said charitable purpose. As noted previously, there exist various legislations governing the registration of public charitable trusts. Various states have enacted separate legislation to govern the administration of charitable trusts, such as the Bombay Public Trusts Act, 1950. Where no such separate state legislation exists, a public trust can be set up by registration of the trust deed with the registrar under the Registration Act, 1908.

The advantage of forming a trust as a charitable organisation is that the control of the organisation can lie with a few persons who are chosen as trustees and are not elected. These trustees can be nominated for any period extending up to their lifetime.

However, the disadvantage is that neither the objects of the trust nor the powers of the trustees can be changed by the trustees themselves, even where the circumstances warrant such changes, without the approval of certain authorities such as the office of the Charity Commissioner or the court of competent jurisdiction, as the case may be.

Societies

A society is essentially an association of seven or more persons united together to achieve an identified common purpose (under the relevant regulations). For a society to be considered as a charitable organisation, the object of the society must conform to the definition of “charitable purpose” under the ITA.

While the Societies Registration Act, 1860 is the central legislation governing societies, various states have enacted independent legislation or amended the central legislation to ensure the proper functioning of societies. Thus, a society can be registered in any district of India with the Registrar of Societies in that particular area. Forming a society as a charitable organisation may be more suitable where there are numerous donors or where the control and management is sought to be more broad-based with greater participation.

The advantage of a society as a charitable organisation is that the objects and the powers can be easily changed by way of special resolutions under the Societies Registration Act, 1860, or the relevant state legislation. Since the management of a society must be elected, a society is suited for democratic participation from a larger number of people.

However, there may be a lack of stability in a large organised charity in the form of a society. It is also not possible to have office-bearers for life as such a provision is prohibited under most state legislations. There is also a greater possibility of interference from state authorities on compliance in societies.

Section 8 Companies

Section 8 of the Companies Act, 2013 provides for the formation of a company with the objective to promote commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objects. Any kind of profit or income of a Section 8 company must be applied only for the promotion of the objects of the company. Consequently, the members of the company are not entitled to receive any dividend. Unlike the formation of any other company, a Section 8 company requires the issue of a special licence by the Central Government for it to be registered as a company.

A company is more stable than a society but less rigid than a trust. It is possible to amend the objects as well as powers relating to the management of the company by amending the charter documents of the company according to the procedure provided in the Companies Act, 2013.

However, a charitable organisation in the form of a company must comply with all the formalities under company law for its registration, management and so on.