India Tax and Estate Planning Structures Ravi NATH Partner, RNC legal t: f: c: e: Geneva November 22, 2010

Succession basics : - Intestate - Testamentary Personal laws of Hindus/ Muslims/ Christians Concepts of: - Self acquired assets; and - Hindu Undivided Family RNCLEGAL.COM HUF

Testamentary Succession Wills: making of Wills: making of Execution of/expense on Execution of/expense on Practical matters/tips Practical matters/tips Life Estates and Rule against perpetuity Life Estates and Rule against perpetuity What can be willed What can be willed HUF as a legatee HUF as a legatee Deity as a legatee Deity as a legatee Charity Charity RNCLEGAL.COM

Trusts: types of Private – Indian Trusts Act, 1882 Public – no national law, State laws only Discretionary/Non-discretionary Inter-vivos/Testamentary Revocable or Living Trusts as contrasted with Irrevocable Trusts RNCLEGAL.COM

Trusts: usefulness and features During the Settlor ’ s lifetime, or by will – implications/features Transferor/Settlor/Trust property Tax and Stamp Duty issues Family circumstances Beneficiaries Rule against perpetuity Letter of wishes Trustees – professional/corporate/family/others - duties of Protector/Administrator RNCLEGAL.COM

Wills vs. Trusts: comparison Wills: Legal process - probate Legal process - probate Assets - available to public gaze Assets - available to public gaze - control on, pending probate - control on, pending probate Susceptible to misuse Susceptible to misuse Trusts: No need for probate No need for probate Family privacy maintained Family privacy maintained Administration procedures minimised Administration procedures minimised Can meet individual family needs Can meet individual family needs Separation of economic rights from decision making Separation of economic rights from decision making

RNCLEGAL.COM Taxation Inheritance Tax/Estate Duty – Nil Inheritance Tax/Estate Duty – Nil Gift Tax – Nil without limit if received: Gift Tax – Nil without limit if received: - from relatives such as spouse, lineal - from relatives such as spouse, lineal ascendants or descendants ascendants or descendants - on marriage - on marriage - under a will or by way of inheritance - under a will or by way of inheritance Wealth Tax - 1% Wealth Tax - 1% Exemptions: first US$ 600 k Exemptions: first US$ 600 k - One House, overseas assets and other - One House, overseas assets and other defined assets defined assets

Trusts, Taxation of Non-discretionary Profits of business/profession – taxed at max. marginal Profits of business/profession – taxed at max. marginal rate (30% + 10% surcharge + 3% education cess on rate (30% + 10% surcharge + 3% education cess on income tax and surcharge = 33.99%) income tax and surcharge = 33.99%) If not – added to beneficiaries’ other income; slab rate If not – added to beneficiaries’ other income; slab rate applies (10%, 20%, 30% + surcharge + educationcess) applies (10%, 20%, 30% + surcharge + education cess) Testamentary trust for benefit of dependent relative Testamentary trust for benefit of dependent relative (only one trust)- income will be added to beneficiaries’ (only one trust)- income will be added to beneficiaries’ other income. Max. rate will not apply other income. Max. rate will not apply RNCLEGAL.COM

Discretionary Profits of business/profession – taxed at max. Profits of business/profession – taxed at max. marginal rate marginal rate Testamentary trust (only one trust) – taxed as an AOP Testamentary trust (only one trust) – taxed as an AOP Oral trusts – max. rate applies

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