INDIA Trends and Developments Contributed by: Tanmay Patnaik, Raj Chheda and Eisha Singh, Trilegal
ificatory deed, executed after proceedings had com - menced, stating that no non-relative was intended to be added, was disregarded as an afterthought. The decision has since been recalled and remanded for fresh consideration, but the Tribunal’s observations remain a useful indication of how rigorously trust structures are now being scrutinised. By contrast, in VS Trust v ITO (Chennai Tribunal), an amendment deleting a similar enabling provision was accepted, as it effectively removed any scope for a non-relative to benefit, and was treated as clarificatory. Read together, these decisions turn on timing and design. Amendments perceived as reactive to tax scrutiny are unlikely to carry weight. Those seen as clarifying original intent embedded may be accepted. The common thread, however, is the emphasis on potentiality rather than actual distributions. These decisions have prompted many families to revisit existing estate planning structures through a more rigorous tax lens, focusing on eliminating draft - ing ambiguities and latent discretionary powers that could trigger unintended tax exposure. The Non - Banking Financial Company ( NBFC ) relaxation for domestic family investment vehicles The Reserve Bank of India’s (RBI) Amendment Direc - tions of April 2026, effective from 1 July 2026, intro - duce “Unregistered Type I NBFC” – entities that do not access public funds, do not have a customer interface, and have assets below INR1,000 crore – exempt from mandatory regulatory registration. This is a meaningful relaxation for certain domestic family investment vehicles, particularly captive finance com - panies and investment holding companies that lend only within the group from their own balance sheet. The practical benefit, however, is more limited than it might first appear. Both “customer interface” and “public funds” are defined broadly, and an entity that has received any external funding, or extended any loan or guarantee outside its own group, is likely to fall outside the exemption. Since assets are aggregated at the group level for the INR1,000 crore threshold, large promoter groups with multiple passive invest - ment vehicles may find the exemption unavailable
even where each individual entity would qualify on a standalone basis. Family offices weighing deregistration ahead of the 31 December 2026 deadline need to look beyond the group’s NBFC footprint to its intra-group transaction profile and overseas investment arrangements, as Unregistered Type I NBFCs intending to make over - seas investments in the financial services sector are required to register as Type I NBFCs regardless. Tax residency : from day - counting to substance The Income Tax Appellate Tribunal’s ruling in Binny Bansal v DCIT has sharpened the analysis of tax resi - dency with significant implications for globally mobile Indian clients. The Tribunal clarified that the extend - ed 182-day threshold available to individuals leaving India is not a blanket concession. It applies only to those who have already established themselves as non-residents in preceding years. More broadly, the ruling signals a shift from mechanical day-counting to a holistic inquiry into economic substance: immovable property, investment footprints, intra-family financial transactions, and the commercial focus of foreign employment arrangements. For individuals who have historically relied on the predictability of the day-count framework, residen - cy planning can no longer be a year-end exercise. It requires long-term, demonstrable establishment of foreign residence, supported by consistent conduct and credible evidence of a genuine shift in personal and economic interests. Cross - border information exchange The broader regulatory environment for private wealth structures is one of increasing transparency. Cross- border information exchange frameworks, the Com - mon Reporting Standard, the Foreign Account Tax Compliance Act (FATCA), and the expanding network of bilateral tax information exchange agreements have significantly increased the visibility of foreign assets held by Indian residents to Indian tax authorities, and of Indian assets held by non-residents to foreign authorities. Structures designed in an era of relative opacity now operate in an environment of relative leg - ibility.
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