INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
being considered taboo in India (culturally perceived to be reserved for the “ultra-wealthy”). 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 assistance in order to set up adequate, sustainable inter-generational structures. Helpful reg - ulatory changes pertaining to simplifying nomination across various assets is also contributing to this pro - gression, by reducing paperwork and the friction in the actual passing on of financial assets. Corporate India continues to focus on building a robust governance by professionalising key manage - rial roles by inducting experts in the field who are not a part of the family into the family business. The trend of private equity firms and financial investors acquiring management control, controlling stakes and running companies has been gaining ground over the years. 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 amicable family settlement agreements, brand-usage agree - ments and non-competes which aid in the seamless 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 cre - ate 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, because the US charges a tax on global income in addition to inher - division of business operations. 2.2 International Planning
itance 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 sec - ondary beneficiaries after their death. Typically, such grantor trusts are not subject to tax in the US 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 distri - butions from India which are credited to their non- resident ordinary (NRO) accounts (ie, onshore Indian accounts held by NRIs) are governed by the provi - sions 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 Liber - alised 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. Under the erstwhile regulations, Overseas Portfolio Investments (OPI) were not clearly spelled out. The new regulations have drawn a clear line of demarca - tion between ODI and OPI. An investment wherein less than 10% paid-up capital and/or voting rights is acquired in a listed entity overseas is classified as an 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. Many families are exploring the ODI route for struc - turing their offshore wealth, which depends on vari - ous factors including the availability for funds to be remitted under the Liberalized Remittance Scheme, positioning of a family member/foreign entity based
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