INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
as well as public trusts. PwC India Family Business Survey 2025 notes that nearly 40% of family business- es have already set up private trusts to hold equity stakes, real estate and family assets. 38+ billionaires have ~25% of their combined wealth (~INR32.52 tril- lion being ~USD357.4 billion) secured in private trusts as per a recent Fortune India report. Notably, private trusts in India are governed by the Indian Trusts Act, 1882, 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 busi- ness, family jewels and so on. Members of the family are made beneficiaries of such family trusts in order to ensure a seamless intra-generational transfer of family-owned wealth. Lifetime gifts are also common due to absence of gift and estate taxes, and are widely used for progressive transfer of business equity, real estate and financial assets. A limitation comes in the form of irrevocable transfer and state stamp duty on immovable property. The Hindu Undivided Family (HUF), which is separate taxable entity available to Hindus, Buddhists, Jains and Sikhs, creates an additional tax exemption limit for income-splitting amongst family members and is commonly used by traditional families for holding ancestral property. 6.2 Tax and Regulatory Constraints In order to prevent any misuse and prevent any income from escaping assessment, certain anti-avoidance provisions have been introduced to stipulate that where any person received money or property 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 has been done in order to prevent the practice of receiving money or property without consideration or for insufficient consideration from unknown persons. The term “property” under this provision includes immovable property, being land or buildings or both, shares and securities, jewellery, archaeological col-
lections, drawings, paintings, sculptures, any work of art or bullion. Accordingly, if a gift is made to a third party, then it would be regarded as “income from other sources”, which is akin to a gift tax, and tax would be chargeable on such gifts made to third parties. However, to provide benefit of tax exemption to genu- ine cases, an exemption from taxation for gifts made to “relatives” is provided. The following individuals would qualify as relatives for the purposes of ITA: • in the case of an individual: (a) spouse of the individual; (b) brother or sister of the individual (or their spouse); (c) brother or sister of the spouse of the individual (or their spouse); (d) brother or sister of either of the parents of the individual (or their spouse); (e) any lineal/maternal ascendant or descendant of the individual (or their spouse); and (f) any lineal ascendant or descendant of the spouse of the individual (or their spouse); and • in the case of a Hindu undivided family, any mem- ber thereof. It is pertinent to note that the term “relative”, as used in the aforementioned provision, has been further clarified under the ITA 2025. The Act now explicitly includes both maternal and paternal ascendants of an individual, as well as those of the individual’s spouse, within the scope of “relative”. This clarification is expected to conclusively address and eliminate any interpretational ambiguities. Disclosures of Foreign Assets When an Indian resident is a beneficiary/settlor/trus- tee in a foreign trust then that person is required to report details of all foreign assets or accounts held at any time during the relevant calendar year ending on December 31, in Schedule FA (Details of Foreign Assets and Income from Any Source Outside India) of their income-tax returns. Resident investors must disclose all foreign assets or accounts in respect of which they are beneficial owners, beneficiaries or legal
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