Private client law in India: overview

A Q&A guide to private client law in India.

The Q&A gives a high level overview of tax; tax residence; inheritance tax; buying property; wills and estate management; succession regimes; intestacy; trusts; co-ownership; familial relationships; minority and capacity, and proposals for reform.

To compare answers across multiple jurisdictions, visit the Private Client Country Q&A tool.

The Q&A is part of the global guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-guide.

Contents

Taxation

Tax year and payment dates

1. When does the official tax year start and finish in your jurisdiction and what are the tax payment dates/deadlines?

In India, the financial year (or official tax year) starts on 1 April and ends on 31 March the following calendar year. In a given financial year, tax is assessed for the income earned in the immediately preceding financial year. The tax payment deadlines for filing income tax returns are:

  • For companies or working partners of a firm, whose accounts must be audited under the Income Tax Act 1961 (ITA) or other law: the deadline is 30 September of the financial year.

  • For taxpayers to who the transfer pricing provisions of the ITA apply: the deadline is 30 November of the financial year. Transfer Pricing provisions apply for international and specified domestic transactions between related parties above prescribed thresholds.

  • For all other persons: the deadline is 31 July of the financial year.

Domicile and residence

2. What concepts determine tax liability in your jurisdiction (for example, domicile and residence)? In what context(s) are they relevant and how do they impact on a taxpayer?

Domicile

Domicile is not relevant for determining tax liability.

Residence

Indian residents are liable to pay income tax on their worldwide income.

Non-residents are liable to pay income tax on India-sourced income.

An intermediate category, resident but not ordinarily resident (RNOR) are taxed like residents, except income which accrues or arises outside India is only taxable in India if derived from a business controlled, or a profession set up, in India.

Individuals. Under the Income Tax Act (ITA), an individual will be deemed "resident" in India if either:

  • The individual stays in India for at least 182 days in during a financial year (365 days).

  • The individual stays in India for at least 60 days and has stayed in India for at least 365 days during the previous four financial years.

If citizen of India or a "person of Indian origin" comes on a visit to India from abroad, they will be deemed resident if they stay in India for at least 182 days during the financial year.

A resident individual may also qualify as RNOR if he/she satisfies either or both of the following additional conditions:

  • The individual has been a non-resident in nine out of ten financial years preceding the financial year under consideration.

  • The individual has been in India for an aggregate period of 729 days or less during the seven financial years preceding the financial year under consideration.

If a resident individual does not satisfy either of the additional conditions above, he will qualify as a resident and ordinarily resident individual (R&OR).

If none of the conditions of residency are satisfied, the individual will be treated as non-resident.

Companies. Under the ITA, a company will be resident in India if either:

  • It is an Indian company (that is, incorporated in India).

  • The company's place of effective management (POEM) is situated in India for the relevant financial year.

For income tax purposes, POEM means the place where key management and commercial decisions, which are necessary for the conduct of the business of the entity as a whole, are in substance made.

Other taxable persons. Under the ITA, other entities will be considered resident if even a part of their control and management is situated within India during the financial year.

Taxation on exit

3. Does your jurisdiction impose any tax when a person leaves (for example, an exit tax)? Are there any other consequences of leaving (particularly with regard to individuals domiciled in your jurisdiction)?

Renouncing residence in India does not trigger imposition of any exit tax. Instead, the Income Tax Act (ITA) provides an assessment of income accrued during the current assessment year at the current rates in force. This is an exception to the ITA's principle of taxing income of the previous year at the rates then in force. This method applies when it appears to the Indian tax authorities that an individual may leave India during the current assessment year or shortly after it ends and the individual has no present intention of returning to India.

However, subject to notified exceptions, every person who is not domiciled in India and who visits India in connection with business, profession, or employment and who derives income from any source in India must receive a "no objection certificate" from the tax authorities prior to his/her departure. This can be obtained by submitting an undertaking from his employer/payer of income in relation to the payment of taxes due from the person in India.

Temporary residents

4. Does your jurisdiction have any particular tax rules affecting temporary residents?

An intermediate category of resident but not ordinarily resident (RNOR) are taxed like residents, except that income which accrues or arises outside India is only taxable in India if it is derived from a business controlled, or a profession set up, in India.

A resident individual may also qualify as RNOR if he/she satisfies either or both of the following additional conditions:

  • The individual has been a non-resident in nine out of ten financial years preceding the financial year under consideration.

  • The individual has been in India for an aggregate period of 729 days or less during the seven financial years preceding the financial year under consideration.

Taxes on the gains and income of foreign nationals

5. How are gains on real estate or other assets owned by a foreign national taxed? What are the relevant tax rates?

The capital gains tax rate varies depending on the:

  • Type of asset.

  • Period of holding.

  • Type of assessee (individual or company).

  • Residential status of the assessee.

Long-term capital gains (LTCG) may arise if the asset is held for a period of more than three years. Conversely, short-term capital gains (STCG) may arise if an asset is held for a period less than three years.

Income from the transfer of a capital asset in India (whether directly or indirectly) is deemed to be taxable in India. A securities transaction tax (STT) is levied on transactions of equity shares in a company, units of an equity-oriented mutual fund and derivatives which are routed through any recognised stock exchange in India. However, sales of such shares which do occur on a recognised stock exchange in India are not liable to pay STT.

LTCG is levied on the transfer of capital assets held for more than:

  • 12 months for listed securities.

  • 24 months for unlisted securities.

LTCG on the transfer of unlisted securities by a non-resident is taxable at:

  • 10% (without the benefit of indexation and currency fluctuation).

  • 20% (with benefit of indexation).

LTCG arising on transfer of equity shares or units of equity oriented mutual funds liable to STT is exempt from tax.

STCG arising out of sale of listed shares on the stock exchange are taxed at the rate of 15%, while such gains arising to a non-resident from sale of unlisted shares is 40%.

Furthermore, if India has entered into a double tax avoidance treaty with the country in which the foreign national resides, the person can claim a tax exemption by way of such treaty.

 
6. How is income received by a foreign national taxed? Is there a withholding tax? What are the income tax rates?

Income received by a foreign national is taxed according to his residence status (see Questions 2 to 4).

Income tax rates vary according to the age and applicable tax bracket of the taxpayer. The current rates of the tax bracket for all individuals below 60 years of age are as follows:

  • For income up to INR250,000 (lower threshold): the individual is exempt from tax.

  • For income of INR250,000 to INR500,000: the rate is 10%.

  • For income of INR500,000 to INR1 million: the rate is 20%.

  • For income above INR1 million: the rate is 30%.

For individuals between 60 to 80 years of age, the lower threshold for exempt income is raised to INR300,000. For individuals of more than 80 years, the lower threshold for exempt income is raised to INR500,000.

For person whose total income is more than INR10 million, a 12% surcharge on income applies. In addition, for such persons the Finance Act 2016 has also introduced a 3% cess.

Under the Income Tax Act (ITA), any person making a payment to a non-resident will be liable to deduct tax chargeable under the ITA. Dividends are not subject to withholding tax in hands of the shareholders if the dividend distribution tax is paid by the company.

If the foreign national does not provide a Permanent Account Number (PAN), his income will be subject to withholding tax at 20% or the highest rate applicable to the relevant income (whichever is higher). However, foreign nationals are not required to provide PAN and can instead provide a Tax Residency Certificate (TRC) and a Tax Identification Number (TIN) if income arises to them in India as any of the following:

  • Interest.

  • Royalties.

  • Fees for technical services.

  • Payments on transfer of any capital asset.

Inheritance tax and lifetime gifts

7. What is the basis of the inheritance tax or gift tax regime (or alternative regime if relevant)?

Inheritance tax was repealed in 1985. India also previously had a gift tax, governed by the Gift Tax Act 1958, which regulated the taxability of all gifts received by Indian individuals. However, this was abolished on 1 October 1998.

However, in 2004 a new provision was introduced into the Income Tax Act (ITA) that sought to tax no-consideration transactions (effectively a re-introduction of a gift tax under the ITA). Under this provision, only gifts received in excess of INR50,000 during a year are taxable. Further, any sum of money or property received as a gift by an individual from a relative (specified degrees of relatives as defined under the ITA) by the way of a will or inheritance will be exempt from any tax.

 
8. What are the inheritance tax or gift tax rates (or alternative rates if relevant)?

Tax rates

India does not impose inheritance or gift tax. For income tax rates, see Question 6.

Tax free allowance

See Question 7.

Exemptions

Tax liability will not be incurred if the transfer falls within one of the exceptions set out under statute. These exceptions include:

  • Transfer under a testamentary instrument, irrevocable trust or by inheritance.

  • Transfer in contemplation of the death of the taxpayer.

  • Transfer on marriage.

  • Transfer between relatives.

For the purposes of the exception, "relatives" are deemed to include:

  • The individual's spouse.

  • The individual's siblings.

  • Siblings of the individual's spouse.

  • Siblings of either parent of the individual.

  • Lineal ascendants or descendants of the individual.

  • Lineal ascendants or descendants of the individual's spouse.

  • The spouse of each of the relatives mentioned above.

Techniques to reduce liability

Tax liability can be reduced/avoided by planning the instance, purpose and mode of gifting, in order to fall within the scope of one of the exemptions set out under statue (see above, Exemptions). In India, irrevocable discretionary trusts and wills (including testamentary trusts) are used extensively for transferring assets between successive generations. It should be noted that if the settlor retains his interest in the trust property, the Indian tax authorities have the discretion to investigate and hold the settlement to not be bona fide, and can accordingly tax the trust property in the hands of the settlor (see Question 30).

In general, but subject to the facts and circumstances of each case, separate trusts and/or wills are recommended for resident and foreign interests.

 
9. Does the inheritance tax or gift tax regime apply to foreign owners of real estate and other assets?

Not applicable (see Question 7).

 
10. Are there any other taxes on death or on lifetime gifts?

There are no other taxes on death or on lifetime gifts.

Taxes on buying real estate and other assets

11. Are there any other taxes that a foreign national must consider when buying real estate and other assets in your jurisdiction?

Purchase and gift taxes

According to the (Indian) Foreign Exchange Management Act 1999, unless acquired by way of inheritance from an Indian resident, foreign nationals of non-Indian origin, or individuals resident outside India, are not permitted to acquire any immovable property in India unless with the express permission of the Reserve Bank of India (RBI) (see Question 12). If permitted to acquire immovable property, the foreign nationals are not permitted to transfer such property without the prior permission of the RBI.

Moreover, when buying non-agricultural immovable property worth more than INR5 million from a resident transferor, the purchaser must withhold tax at 1% of the consideration payable to the transferor. If the seller fails to provide the necessary Permanent Account Number details, the rate will be 20%.

Wealth taxes

Wealth tax was abolished in 2015.

Other

Stamp duty. Stamp duty is imposed on documents used for carrying out specified transactions. 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.

VAT. Some Indian states may impose VAT while selling house, flats, bungalows that are under construction and/or a service tax depending on the stage of construction of the property.

Goods and services tax (GST). The Indian Parliament is in the process of passing reformative legislation in relation to the framework of a GST regime. However, this is not yet finalised.

 
12. What tax-advantageous real estate holding structures are available in your jurisdiction for non-resident individuals?

Restrictions on real estate ownership

Only certain categories of persons and entities can own real estate in India. In the case of natural persons, most people hold their real estate in their personal name as opposed to by an intervening corporate entity. In addition to local laws, the process for inheriting, acquiring and transferring/disposing of real estate by non-residents is governed by foreign exchange laws. The restrictions on owning real estate under these foreign exchange laws are set out as follows.

Acquisition/transfer by non-resident Indians and persons of Indian origin. For the purpose of transferring real estate, a non-resident Indian (NRI) is a person who is resident outside of India but who is a citizen of India.

A person of Indian origin (PIO) is a person who is resident outside India but who is a citizen of any country as specified by the Central Government and who satisfies the prescribed conditions (related to India by birth, descent, marriage and so on). A PIO can be an overseas citizen of India (OCI) cardholder. NRIs and PIOs are:

  • Permitted to purchase any immovable property (other than agricultural land/plantation property/farm house) in India.

  • Permitted to transfer any immovable property in India (including agricultural land/plantation property/farm house) to a resident, while he may only transfer immovable property (other than agricultural land/plantation property/farm house) to an Indian citizen resident outside India or a PIO outside India.

Acquisition/transfer by non-resident foreign nationals. Unless acquired by way of inheritance from an Indian resident, foreign nationals of non-Indian origin who are resident outside of India are not permitted to acquire any immovable property in India unless with the express permission of the Reserve Bank of India (RBI). However, such persons can acquire or transfer immovable property in India, on a lease basis, without the prior approval of the RBI (for leases not exceeding five years) and with prior RBI approval (for leases exceeding five years).

Foreign nationals of non-Indian origin that are not citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong can acquire immovable property in India on becoming resident in India. In this regard, the individual must satisfy the condition of period of stay. The type of visa granted should clearly indicate the intention to stay in India for an uncertain period to determine his residential status.

If a foreign national is permitted to acquire immovable property in India by the RBI, the foreign national is not permitted to transfer the property without the prior permission of the RBI.

Acquisition/transfer by resident outside India for branch office or other place of business (excluding a liaison office). Such individuals are permitted to acquire immovable property in India if the acquisition is necessary for or incidental to carrying business activities in India as a branch office or other place of business, provided:

  • All applicable laws are duly complied with.

  • A declaration from the RBI is filed no later than 90 days after acquiring the real estate.

Capital gains from sale of real estate

For capital gains tax liability, see Question 5. Dividends distributed by a company are not taxable in the hands of the recipient. Instead, the company pays dividend distribution tax on any dividends.

Subject to certain conditions, if a person has invested the capital gains accrued from sale of a residential property or other specified asset for the purchase of another residential property/specified bonds, the income that is reinvested is exempt from capital gains tax (ITA).

Taxes on overseas real estate and other assets

13. How are residents in your jurisdiction with real estate or other assets overseas taxed?

Residents are liable to tax on their income from overseas assets. If an individual is resident but not ordinarily resident (see Question 2, Residence: Individuals), income accruing or arising from the individual's overseas assets are not included unless they are derived from a business controlled in India or a profession set up in India.

International tax treaties

14. Is your jurisdiction a party to many double tax treaties with other jurisdictions?

India has comprehensive tax treaties with around 90 countries, including the UK, US, Australia, the UAE, Mauritius and so on.

India has also entered into tax information exchange agreements with around 15 countries, including the British Virgin Islands, Liechtenstein and so on.

 

Wills and estate administration

Governing law and formalities

15. Is it essential for an owner of assets in your jurisdiction to make a will in your jurisdiction? Does the will have to be governed by the laws of your jurisdiction?

It is not essential for an owner of assets to make a will in India. Intestate succession in India is governed by personal laws which vary according to the religion of the intestate.

Testamentary succession to movable property is regulated by the law of the country in which the deceased had domiciled at the time of his death. Immovable property situated in India, however, is regulated by Indian law irrespective of the domicile.

 
16. What are the formalities for making a will in your jurisdiction? Do they vary depending on the nationality, residence and/or domicile of the testator?

The provisions of Indian Succession Act 1882 govern the rules relating to wills made by persons of various religions, except Muslims. The following rules apply to a will (Succession Act):

  • It must contain a legal declaration of the testator's intention.

  • It must relate to the disposition of the testator's personal property.

  • It must be in writing (subject to the prescribed exceptions).

  • It must be signed or marked by the testator or by some other person in his or her presence and at his or her direction.

  • It must be attested by at least two witnesses.

The requirements for a valid Muslim will are derived from Sharia law. A Muslim will can be made orally or in writing and does not require any signature or attestation. However, if a Muslim is married under the Special Marriage Act 1954, the requirements of a will are then governed by the Succession Act.

Redirecting entitlements

17. What rules apply if beneficiaries redirect their entitlements?

An heir can renounce his estate by making an appropriate declaration. There is no statutory regime prescribed in this regard. If an heir renounces his estate, the property will be disposed of according to the rules of intestate succession, or as per the residual estate or other suitable provisions in the will (if any).

According to the Indian Trusts Act 1882, a beneficiary of a trust can transfer his interest if the person is competent to contract. However, this right is subject to any specific legal restrictions in force and the circumstances and extent to which he can dispose of the interest according to the provisions of the trust instrument. However, if property is transferred or bequeathed for the benefit of a married woman, she cannot deprive herself of her beneficial interest. She cannot transfer the interest during her marriage.

A transferee will accrue the same rights and duties which the original beneficiary would have been subject to.

Validity of foreign wills and foreign grants of probate

18. To what extent are wills made in another jurisdiction recognised as valid/enforced in your jurisdiction? Does your jurisdiction recognise a foreign grant of probate (or its equivalent) or are further formalities required?

Validity of foreign wills

Wills made in other jurisdictions are not automatically enforceable in India. Under the Succession Act, an ancillary probate can be granted to authenticate a foreign will. A foreign will (once proved and deposited in a court of competent jurisdiction) or a properly authenticated copy of the will and letters of administration will be recognised by the Indian courts, even if the will does not fulfil all of the requirements set out in Question 16. Otherwise, if the court thinks proper, it will take the evidence into account and will examine the petitioner upon oath to ensure the veracity of the will.

Validity of foreign grants of probate

An executor or legatee cannot claim his rights under the will unless probate or letters of administration of the will are obtained.

Death of foreign nationals

19. Are there any relevant practical estate administration issues if foreign nationals die in your jurisdiction?

If a foreign will requires a probate/letters of administration, Indian courts typically ask for the executor/administrator to be present before the court. For this reason itself, many testators prefer appointing Indian residents as their executors. Furthermore, within six months of the grant of probate or letters of administration, the executor/administrator must exhibit inventory and accounts containing:

  • A full and true estimate of all properties in possession.

  • All credits related to them.

  • All debts owed to the executor.

The accounts exhibited must both:

  • Show the assets that have come under the executor's hands.

  • Depict the manner in which they have been applied or disposed of.

The executor must speedily collect all debts that were due to the deceased at the time of his death. Considering these factors, it is advisable for the executor/administrator to be an Indian resident.

Probate/letters of administration procedures may also require the deposit of a portion of the property with the court. For this reason, a trust is often created prior to death, to reduce the hassles relating to administration on death and execution of the testament.

Administering the estate

20. Who is responsible for administering the estate and in whom does it initially vest?

Responsibility for administering

The executor or administrator is responsible for administering the estate. Probate is can only be granted to an executor appointed by the will.

An administrator is a person appointed by a competent authority to administer the estate of a deceased person when there is no executor. Letters of administration entitle the ad-ministrator to all rights belonging to the intestate as effectually as if the administration had been granted at the moment after his death.

The executor or administrator will:

  • Collect, with reasonable diligence, the property of the deceased and the debts due to him at the time of his death.

  • Pay all debts he knows or is aware of, including any monies owed to himself by the deceased, equally and rateably as far as the assets of the deceased will extend.

The assent of the executor or administrator is necessary to complete a legatee's title to his legacy. An executor or administrator is not bound to pay or deliver any legacy until the expiration of one year from the testator's death.

Vesting

The estate vests in the executor or administrator while the beneficial interest rests with the legal heirs. However, if the deceased was a Hindu, Muslim, Buddhist, Sikh, Jaina or Parsi or an exempted person, nothing from the property of the deceased person vests in an executor or administrator, as the estate would pass by survivorship.

 
21. What is the procedure on death in your jurisdiction for tax and other purposes in relation to:
  • Establishing title and gathering in assets (including any particular considerations for non-resident executors)?

  • Paying taxes?

  • Distributing?

Establishing title and gathering in assets

No right as executor or legatee can be established in any court, unless a competent court in India has granted probate or letters of administration. For details of foreign wills and foreign probate, see Question 17.

The executor or administrator collects, with reasonable diligence, the property of the deceased and the debts that were due to him at the time of his death (see Question 20, responsibility for administering). Subject to exceptions, if the deceased was not domiciled in India, the application of his movable property to the payment of his debts is still regulated by the law of India.

Procedure for paying taxes

India does not impose estate or inheritance tax.

Distributing the estate

Before distributing the legacy, debts of every description must be paid. If the assets are not sufficient to pay all the general legacies in full, the legacy is severed into equal proportions.

Also, where a person who is not domiciled in India has died leaving assets both in India and abroad, and there has been a grant of probate or letters of administration in India in relation to the assets there and a grant of administration in the country of domicile, instead of himself distributing any surplus or residue of the deceased's property to persons residing out of India, the executor or administrator can transfer (with the consent of the executor or administrator) the surplus or residue to him for distribution to such persons in the country of domicile.

 
22. Are there any time limits/restrictions/valuation issues that are particularly relevant to an estate with an element in another jurisdiction?

There is no time limit restricting the application for probate/letters of administration. However, the courts will only grant probate subject to:

  • The furnishing of sufficient evidence required to prove the will.

  • The ability of the petitioner and witnesses to appear before the court.

See also Question 20.

 
23. Is it possible for a beneficiary to challenge a will/the executors/the administrators?

It is possible to challenge a will if it can be established that the will was prepared and executed under circumstances which raise a "reasonable suspicion" that the testator did not express his mind under the will.

A will made by a person who was allegedly not of sound mind while making the will can be questioned in the court. A will cannot be made under coercion, fraud or undue influence. If so, to that extent the will is void. Coercion and undue influence are two of the most common grounds on which validity of wills is challenged in Indian courts. Effectively, in such cases it is alleged that the testator was "forced" to make his will against his wishes, by someone to do the will by using force or threats.

The Indian courts have held the following (among other things) to be "suspicious circumstances":

  • When validity of the testator's or witnesses' signature(s) are in question.

  • When there is no free consent.

  • Where the person benefitting from the will took a prominent part in the execution of the will.

  • When there is a delay in propounding the will; or when incorrect recitals form a part of the will.

 

Succession regimes

24. What is the succession regime in your jurisdiction (for example, is there a forced heirship regime)?

The Succession regimes for the persons belonging to the different communities are different, and are governed by the specific legislations or personal customs. There is no forced heirship regime in India except in relation to Muslims and residents of the State of Goa (see Question 25). Apart from these specific regimes, the testator has full testamentary freedom to dispose of his property as he deems fit.

Forced heirship regimes

25. What are the main characteristics of the forced heirship regime, if any, in your jurisdiction?

In India, the concept of forced heirship is only relevant to:

  • Muslims, who are governed by Islamic laws.

  • Residents of Goa, who are governed by Portuguese Civil Law.

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

Residents of the State of Goa, regardless of their religion cannot dispose more than 50% (which is automatically transferred to that deceased's spouse).

Avoiding the regime

Under the Islamic law, the forced heirship regime can be avoided by obtaining the consent of the heirs. The consent can be given by the testator:

  • Before or after death.

  • Expressly or impliedly.

However, if the entire estate is bequeathed to one heir excluding other heirs entirely from inheritance, the bequest will be void in its entirety. According to Sunni Law, consent by the heirs should be given after the testator's death, as consent given during the lifetime of the testator has no legal effect.

Under Goan law, forced heirship can be avoided if the donor specifies this expressly in the will/gift instrument or where the legatee/done renounces the bequest/gift.

Assets received by beneficiaries in other jurisdictions

If the deceased is a Muslim domiciled in India or a Goan, his moveable assets would be subject to the forced heirship regime, irrespective of the jurisdiction in which they are located.

Mandatory or variable

See above, Avoiding the regime.

Real estate or other assets owned by foreign nationals

26. Are real estate or other assets owned by a foreign national subject to your succession laws or the laws of the foreign national's original country?

Succession to immovable property in India is regulated by Indian law regardless of where the deceased was domiciled or had residence at the time of his death. However, for movable property, succession is regulated by the law of the country in which the deceased had domicile at the time of his death.

 
27. Do your courts apply the doctrine of renvoi in relation to succession to immovable property?

Indian courts have not dealt with the doctrine of renvoi extensively. In its judgment in Vishwanathan v Wajid (AIR 1963 SC 1), the Supreme Court held that every issue relating to immoveable property should be dealt with by the courts of the country where the property is situated. This judgment can be interpreted to have the effect of ruling out the application of renvoi. Also, in National Thermal Power Corporation v Singer Company (1992 SCR (3) 106), the Supreme Court held that the law of contract is not affected by the doctrine of renvoi.

 

Intestacy

28. What different succession rules, if any, apply to the intestate?

Intestate succession rules differ according to religion.

Non-muslims

The Hindu Succession Act 1956 sets out rules for the order of succession when a Hindu, Buddhist, Jain or Sikh dies intestate. The Succession Act also applies to Christians and Parsis.

The property of a male intestate Hindu is devolved in the following order:

  • Class I heirs. This includes the son, daughter, widow, mother and certain other relations. Class I heirs take simultaneously and to the exclusion of others.

  • Class II heirs. This includes the father, siblings and other specified relations. Class II heirs inherit sequentially.

The property of a female intestate Hindu devolves in the following order:

  • Sons and daughters. This includes the children of any pre-deceased son or daughter and her husband.

  • The heirs of the husband.

  • Her parents.

  • The heirs of the father.

  • The heirs of the mother.

Muslims

Intestate succession in Muslims is governed by the Islamic Law of Succession which differs for Shias and Sunnis.

Sunni law. Under Sunni law, succession is as follows:

  • Classification. Heirs are classified as sharers (parents), residuaries (children) and distant kindred (blood relations other than those who are sharers and residuaries).

  • Distribution. First, the sharers are allotted their respective shares. If there is any residue, this is divided among the residuaries. Distant kindred only inherit when there is no heir belonging to the class of sharers or residuaries, except in the case of a spouse.

Shia law. Under Shia law, succession is as follows:

  • Classification. Heirs are divided into three classes.

  • Distribution. Heirs of first class (parents and children) exclude the heirs of the second class (grandparents, brothers and sisters). The heirs of the second class exclude the heirs of the third class (paternal and maternal uncles and aunts).

 
29. Is it possible for beneficiaries to challenge the adequacy of their provision under the intestacy rules?

If the beneficiaries have been given their share in accordance with the succession laws applicable on them, their provision cannot be challenged.

 

Trusts

30. Are trusts (or an alternative structure) recognised in your jurisdiction?

Type of trust and taxation

Trusts are recognised in India under the Trusts Act.

Trusts are based on common law principles. Indian law classifies trusts on the basis of their purpose, which are generally for a:

  • Private purpose (private trust/family trust).

  • Religious/charitable purpose (public trust).

The different types of trust in India are taxed in the following manner:

  • Revocable trust. This type of trust can be revoked by the settlor at any time during his lifetime. In a revocable trust, income of the trust is taxed in the hands of the settlor. Tax is imposed at the rates applicable to the settlor.

  • Irrevocable determinate trust. If the trust can never be revoked and the beneficiaries' shares can be determined, the share falling to each of the beneficiaries will be assessed for tax purposes in the hands of trustee(s) as a "representative assessee". The assessment is made at the rate that applies to the total income of each beneficiary.

  • Irrevocable discretionary trust. If the trust can never be revoked and the beneficiaries and their shares cannot be determined, the trustee(s) will be liable to tax as a representative assessee of the beneficiaries and is subjected to tax at the maximum marginal rate (MMR) (presently 30%) of the trust income.

    Furthermore, if the income of the trust (determinate or discretionary) includes business profits, the income of the trust is chargeable to tax at the MMR.

  • Religious/charitable trust. The income of a public trust registered wholly for charitable or religious purposes is not liable to tax.

Residence of trusts

A trust will be regarded as "resident of India" for a given year even if a part of its control and management is situated wholly in India for that year (see Question 2, Residence). Further, an offshore discretionary trust with only Indian-resident beneficiaries may be at the risk of being considered resident in India.

 
31. Does your jurisdiction recognise trusts that are governed by another jurisdiction's laws and are created for foreign persons?

India 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 the exchange control regulations.

 
32. What are the tax consequences of trustees (for example, of an English trust) becoming resident in/leaving your jurisdiction?

If a non-resident trustee of a foreign trust shifts his residence to India, the foreign trust may be considered Indian resident and may therefore be subject to tax under Indian tax laws (see Question 30, Residence of trusts).

According to the Organization for Economic Co-operation and Development (OECD) Common Reporting Standard, and the Inter-Governmental Agreement between India and United States (as per the provisions of the Foreign Account Tax Compliance Act), a trust is considered to be resident where the trustee(s) is resident. If there is more than one trustee, the trust will be considered as a reporting institution in all such countries in which a trustee is resident.

 
33. If your jurisdiction has its own trust law:
  • Does the law provide specifically for the creation of non-charitable purpose trusts?

  • Does the law restrict the perpetuity period within which gifts in trusts must vest, or the period during which income may be accumulated?

  • Can the trust document restrict the beneficiaries' rights to information about the trust?

Purpose trusts

Only charitable trusts are recognised in India. Charitable trusts can also be set up for religious purposes (see Question 36). Purpose trusts are not recognised in India.

Perpetuities and accumulations

Indian law restricts the perpetuity period within which gifts in a trust must vest, or the period during which trust income can be accumulated. No transfer of property can operate to create an interest which is to take effect after the lifetime of a person living at the date of such transfer, and the minority of some person who comes in existence at the expiration of that period, and to whom the interest created is to belong when he reaches 18 years of age.

However, the exception to this rule against perpetuity relates to transfers of property for the benefit of the public in advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind.

Except for charitable bequests, a bequest in which the vesting of the property is to occur after the lifetime of one or more persons will not be valid. Further, subject to the exceptions prescribed under statute, the accumulation (either wholly or partly) of any income from property is not allowed for a period longer than the lifetime of the transferor or 18 years from the date of transfer (whichever is later). Similarly, if the will directs that income arising from property can be accumulated (wholly or in part) during a period longer than 18 years from the death of the testator, this direction will (subject to exceptions) be void to the extent that the period during which the accumulation is directed exceeds this period, and at the end of the 18-year period, the property and the income will be disposed of.

Beneficiaries' rights to information

According to statue, trustees must maintain accurate accounts of the trust property, and if the beneficiary so requests, the trustee is required to furnish full and accurate information in relation to the amount and state of the trust property. Moreover, the beneficiary has a statutory right, as against the trustee and all persons claiming under him with notice of the trust, to inspect and take copies of the:

  • Instrument of trust.

  • Documents of title relating solely to the trust property.

  • Accounts of the trust property and the vouchers (if any) by which they are supported.

  • Cases submitted.

  • Opinions taken by the trustee for his guidance in the discharge of his duty.

 
34. Does the law in your jurisdiction recognise claims against trust assets by the spouse/civil partner of a settlor or beneficiary on the dissolution of the marriage/partnership?

In a divorce, a spouse is entitled to certain amounts as maintenance and any jointly-owned assets may have to be split up or realised and the sale proceeds to be split equally between the divorced spouses.

All movable and immovable property of a person can be attached or sold by court order to satisfy any claims against such person (provided they are authorised to dispose of the property) either in his own name or by another person in trust for him, or on his behalf exercised for his own benefit (section 60, Code of Civil Procedure 1908). Therefore, unlike in an irrevocable trust, if assets are transferred into a revocable trust, the court can attach the trust assets, as the settlor retains controlling interest over such assets. Similarly, in the case of a determinate trust, where the share of each beneficiary is predetermined, the court can settle claims against a beneficiary by attaching his share of the trust property.

Transfers made to defraud creditors may be set aside by the court (see Question 35).

 
35. To what extent does the law of your jurisdiction allow trusts to be used to shelter assets from the creditors of a settlor or beneficiary?

The new Insolvency and Bankruptcy Code 2016 (Bankruptcy Code) came into force on 5 August 2016.

Under the Bankruptcy Code, when a person or business files for bankruptcy, certain transfers made by him to relatives or by a business to related parties (as defined under the Bankruptcy Code) may be set aside if made two years prior to the bankruptcy filing. Any transfer made one year prior to the bankruptcy filing with an intention to defraud the creditors may be set aside. However, fraudulent intent must be proved in order to set aside the transfer.

Furthermore, any transfer made by a person or business can be set aside if:

  • The transfer was for an undervalued consideration or by way of gift.

  • The person or business was insolvent at the time of transfer.

  • The person or business knew that it had debts and would be unable to pay them.

However, transfers made in consideration or marriage or to a bona fide purchaser for valuable consideration will not be set aside.

 

Charities

36. Are charities recognised in your jurisdiction?

Charities are recognised in India. However, the legal framework governing charitable giving and philanthropy in India is complex and varies from state to state.

The Income Tax Act provides that a charitable purpose includes:

  • Relief of the poor.

  • Education.

  • Medical relief.

  • 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 (see Question 37).


 
37. If charities are recognised in your jurisdiction, how can an individual donor set up a charity?

The following legal structures are available for setting up charities:

  • Public charitable trust. These are primarily regulated through state-specific laws. The trust must be registered with the charity commissioner appointed under the specific state legislation.

  • Section 8 company. This is a company incorporated under the Companies Act 2013 which is formed for prescribed charitable purposes. These companies can only use its income to promote said activities and are prohibited from distributing dividends to its shareholders.

  • Charitable society. These are also regulated by central/state specific laws. Charitable societies can write their own constitution documents and are managed and governed by and an elected body of members.

Charities are specifically registered under relevant central and state laws which generally provide for entering the information in the public registers. Further, charities are regulated by the regulators appointed for their respective jurisdiction.


 
38. What are the benefits for individuals when setting up charitable organisations?

According to the Income Tax Act (ITA), an individual making charitable donations is eligible to a deduction of 50% to 200% of their taxable income. The ITA contains a list of prescribed organisations that are eligible for such deductions. However, donations given in-kind are not eligible for claiming tax deductions.

Furthermore, charities can claim an exemption from income tax if they are registered under the ITA.


 

Ownership and familial relationships

Co-ownership

39. What are the laws regarding co-ownership and how do they impact on taxes, succession and estate administration?

Two types of co-ownership are recognised in India:

  • Joint tenancy. Under joint tenancy, the joint owners have unity of interest. On the death of a joint tenant, the interest will pass unto the other survivors until the last survivor is entitled to the entire possession.

  • Tenancy in common. Under tenancy-in-common, each owner holds a definitive share of interest in an undivided property.

A co-owner of a property can exercise all property rights over his share in the property, including the right to transfer the property. The transferee acquires, as to the given share or interest in the property, all the rights related to the property. He can also enforce a partition in relation to his share. However, the rights are subject to the conditions and liabilities affecting the share or interest transferred on the date of transfer. An exception to this provision is that, if the transferee acquires a share in a dwelling house belonging to an undivided family and he is not a member of that family, he does not have the right to joint possession or other common or part enjoyment of the house.

Familial relationships

40. What matrimonial regimes in trust or succession law exist in your jurisdiction? Are the rights of cohabitees/civil partners in real estate or other assets protected by law?

Marriage is the only legally-recognised matrimonial regime in India. India does not recognise any form of civil partnership.

The Supreme Court has held that any man and woman cohabiting for a long term will be presumed as legally married under the law unless the contrary is proved. The Supreme Court has also held that a woman, who has been in a civil partnership similar to that of a marriage, is entitled to alimony. A woman living in as a civil partner has a right to reside in a shared household, whether or not she has any right or title to the property.

Furthermore, a child born out of wedlock in such an arrangement would be conferred the status of a legitimate child and would be entitled to inheritance rights in accordance with the personal laws applicable to them.

 
41. Is there a form of recognised relationship for same-sex couples and how are they treated for tax and succession purposes?

Section 377 of the Indian Penal Code 1860 categorises same-sex relationships as unnatural offences and criminalises them.

In 2009, the Delhi High Court had restricted the scope of section 377 to the effect of de-criminalising same sex relationships. However, the Indian Supreme Court reversed the Delhi High Court judgment. Furthermore, same sex relationships are considered a taboo in a largely conservative Indian society which appears to be divided on the controversial issue. Therefore, such relationships are not recognised in India.

 
42. How are the following terms defined in law:
  • Married?

  • Divorced?

  • Adopted?

  • Legitimate?

  • Civil partnership?

Married

In India, the definition of marriage differs according to the personal laws of different religions. A couple is said to be married if their marriage is performed in accordance with the laws governing their community. Hindu laws traditionally treat marriage as a sacrament which is not dissolved even after death of a spouse. However, the Hindu Marriage Act 1955 brought in some changes of far reaching consequences which have undermined the sacramental nature of marriage and rendered it largely contractual in nature. Muslim laws consider marriage as a legal bond and social contract between a man and a woman.

The Special Marriage Act 1954 provides an optional common code of marriage which can be used by any national of India, regardless of the faith to which either party to the marriage may profess.

When at least one of the parties to marriage is a citizen of India and the ceremony takes place in a foreign country, the parties are married if the conditions set out in the Foreign Marriage Act 1969 are fulfilled.

Divorced

Like marriage, divorce is also not defined under the relevant laws.

A Hindu couples can be divorced by decree of divorce under the Hindu Marriage Act 1956. The divorce can be given on the grounds of adultery, cruelty, desertion, by mutual consent and so on.

A Muslim couple can be divorced if the divorce is given by husband under personal laws, or by wife under the Dissolution of Muslim Marriages Act 1939 or under limited personal laws, or by mutual consent.

A Christian couple can be divorced by decree of divorce under the Indian Divorce Act 1869.

A couple married under the Special Marriage Act can be divorced by the decree passed under the Act on the grounds of adultery, desertion, unsound mind and so on.

Couple married under Foreign Marriage Act can be divorced by a court's decree on grounds for divorce as provided under the Special Marriage Act.

Adopted

There is no uniform definition of the term "adopted" under Indian law. Indian citizens can adopt a child in India under three main laws:

  • For Hindus, Buddhists, Jains and Sikhs: under the Hindu Adoption and Maintenance Act 1956.

  • For non-Hindus and foreign nationals (to become guardians): under the Guardians and Wards Act 1890.

  • For any Indian citizen: under the Juvenile Justice (Care and Protection) Act 2000.

Parsis, Christians and Muslims are governed by their personal customary laws in this regard.

The Juvenile Justice (Care and Protection) Act defines adoption as "the process through which the adopted child is permanently separated from its biological parents and becomes the legitimate child of his adoptive parents, with all the rights, privileges and responsibilities that are attached to the relationship".

Legitimate

Indian law does not define the term "legitimate". However, a person born during the continuance of a valid marriage between his mother and any man, or within 280 days after its dissolution, the mother remaining unmarried, will be conclusive proof that he is the legitimate son of that man, unless it can be shown that the parties to the marriage had no access to each other at any time when the child was conceived (Indian Evidence Act 1872)

Civil partnership

See Question 40.

Minority

43. What rules apply during the period when an heir is a minor? Can a minor own assets and who can deal with those assets on the minor's behalf?

In India, a person is considered to be a minor until he attains the age of 18 years. However, the age of majority is extended to 21 years in cases where a guardian is appointed by a court in relation to the minor and his property.

Although a minor can inherit and own assets, he cannot transfer the property until he attains majority. When a minor is a sole residuary legatee, letters of administration will be granted to the minor's legal guardian (or other person as court thinks fit) until he attains majority (at which period, and not before, probate will be granted to him).

If there are two or more minor residuary legatees and no residuary legatee who has attained majority, the grant will be limited until one of them has attained majority.

 

Capacity and power of attorney

44. What procedures apply when a person loses capacity? Does your jurisdiction recognise powers of attorney (or their equivalent) made under the law of other jurisdictions?

The eventuality of a person losing capacity is not governed by a single statute. However, various statutes provide for situations where a person is said to lose capacity.

If an Indian court finds that a person has lost legal capacity, that person will lose their right to make certain decisions. For example, the Code of Civil Procedure 1908 provides that a minor or a person of unsound mind can sue in a court of law through a guardian or next friend. The Trusts Act requires the trustees to get the approval of the court before dealing with the property of the trust in certain situations (such as where the beneficiaries include minors or persons of unsound mind).

Further, any power of attorney executed outside India needs authentication. It must be authenticated by a notary public of that country, the Indian consulate, or by a representative of the Central Government. Such documents must be stamped within three months from the date of receipt in India, to be payable at the district registrar's office.

 

Proposals for reform

45. Are there any proposals to reform private client law in your jurisdiction?

The Law Commission of India has made a number of reform recommendations over the years, for example:

  • Country-wide uniformity should be brought in the substantive law relating to marriage registration.

  • Specific provisions should be introduced to deal with the effect of divorce or annulment of marriage, on wills.

In August 2016, the Goa state Government sought to replace the Portuguese Civil Code on the subject of succession by passing the Goa Succession, Special Notaries and Inventory Proceeding Bill to consolidate and amend the law of intestate and testamentary succession, notarial law and the laws relating to partition of an inheritance and related matters.

Article 44 of the Indian Constitution directs the government to secure for the Indian citizens, irrespective of their religious faith, a "uniform civil code" which is a common code of personal laws covering property, marriage, divorce, inheritance and succession. Recently, due to disparities in various personal laws, there has been a nationwide debate to draft and implement the uniform civil code.

 

Online resources

Income Tax department

W www.incometaxindia.gov.in

Description. Official website of the Income Tax Department. Website is maintained and updated regularly.

Reserve Bank of India

W www.rbi.org.in

Description. Official website of the Reserve Bank of India, India's central bank. website is maintained and updated regularly.

Legislative Department

W www.indacode.nic.in

Description. Maintained by the Legislative Department. Website may not be regularly updated.



Contributor profiles

Cyril Shroff, Managing Partner

Cyril Amarchand Mangaldas

T +91 22 24964455
E cyril.shroff@cyrilshroff.com
W www.cyrilamarchandblogs.com/

Professional qualifications. Maharashtra & Goa, India, Advocate; Solicitor, Bombay Incorporated Law Society

Areas of practice. Private client; corporate law; securities law; capital markets; banking; projects; project finance.

Recent transactions

  • Provides succession, taxation, estate and wealth planning advice for wealthy individuals and their families, who are often promoters of large family businesses.
  • Provides related advice to trustees and other private client service providers, such as family offices and institutional/corporate trustees.
  • Advises on the creation and management of a number of domestic trusts, and has experience of advising both trustees and beneficiaries in relation to their relative rights, responsibilities and obligations.
  • Provides advice in India and abroad on family business related issues such as governance, succession and wealth management issues.
  • Has played an instrumental role in mediating many prominent family disputes in India.
  • Worked on a number of Family Constitutions and Family Arrangements with some of India's most prominent business families.
  • Provides new family office establishment as well as on-going strategic advice to families with established family offices.

Languages. English; Hindi; Marathi and Guajarati.

Professional associations/memberships

  • Director and senior member of STEP Estate Planning India Private Limited, the Indian Chapter of the Society of Trust Estate Practitioners (STEP).
  • Member of the Advisory Board of the National Institute of Securities Markets.
  • Member of the Advisory Board of the Centre for Study of the Legal Profession established by Harvard Law School.
  • Member of the Legal Media Defence Initiative International Advisory Board.

Publications and awards

  • Authored several publications on legal topics. He has won numerous awards from Legal Publications.
  • Featured in recent issue of Asian Legal Business (ALB) - Dealmakers of the Year 2016, as the only individual from India. He was also awarded with "Emerging Markets Firm Leader of the Year - Independent" at the Asian Lawyer Emerging Markets Awards 2016 organized by American Legal Media.
  • He has been recognised as a "legendary figure in the Indian legal community" and is consistently ranked as "star practitioner" in India by Chambers Global. Mr Shroff is often regarded as the "M&A King of India".

Rishabh Cyril Shroff, Partner

Cyril Amarchand Mangaldas

T +91 22 24964455
E rishabh.shroff@cyrilshroff.com
W www.cyrilamarchandblogs.com/

Professional qualifications. England and Wales, Solicitor; Maharashtra & Goa, India, Advocate

Areas of practice. Private client; corporate law; securities law; international M&A.

Recent transactions

  • Provides succession, taxation, estate and wealth planning advice for wealthy individuals and their families, who are often promoters of large family businesses.
  • Provides related advice to trustees and other private client service providers, such as family offices and institutional/corporate trustees.
  • Advises on the creation and management of a number of domestic trusts, and has experience of advising both trustees and beneficiaries in relation to their relative rights, responsibilities and obligations.
  • Frequently advises on complex issues arising under the Indian exchange control regime (including in respect of NRIs and foreign trusts and companies), SEBI Takeover Regulations and the SEBI listing agreement.

Languages. English; Hindi; Marathi; Guajarati and basic Japanese

Professional associations/memberships

  • Founder, director and senior member of STEP Estate Planning India Private Limited, the Indian Chapter of the Society of Trust Estate Practitioners (STEP).
  • Committee member of the Confederation of Indian Industry (CII) Western Region Family Business Sub-Committee.
  • Member of the CII Family Business Network.
  • Member of the Family Firm Institute.

Publications

  • "Budget 2013: Will India' s proposed inheritance tax be a ' heir' raising experience? , Economic Times, 28 February 2012.
  • "Succession Planning in Family/Promoter driven companies" , Spencer Stuart Board Index, 2012.
  • "The Evolving Role of Marwari Women in Business" , Marwar Magazine, March/April 2015 Edition; The International Comparative Legal Guide to: Private Client, 2015 and 2016 Editions.
  • Private Wealth Guide for Asia, Indian Chapter, 2012.
  • Quoted in "Rapid wealth creation fuels fast growth for India' s advisors" , Citywealth Magazine (UK), September 2015.

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