INDIA: An Introduction to Private Wealth Law

India – Private Client Overview  

Introduction and current landscape 

Due to the ongoing liberalisation of the Indian economy, India has witnessed significant growth in its number of high net worth individuals (HNIs) over the last decade, with recent studies showing that the number of HNIs in India has grown by 50% over the last decade and shows no signs of slowing down. Unlike the generally gloomy economic outlook for the rest of the world, there is a cautious optimism that economic growth and development will continue in India, helped no small amount by government initiatives that are heavy on infrastructure development and ease of doing business, to both mobilise domestic investment and attract foreign investment. The vast majority of Indian businesses today are family owned and controlled; Forbes estimates that 73% of companies listed on the Bombay Stock Exchange 500 index are family run.

Somewhat unique to Indian HNIs is the fact that there is a truly global Indian diaspora. With an increasing number of wealthy Indian families choosing to send their children to study and work abroad, Indian families are now spread across various jurisdictions and are expanding their family businesses across multiple countries, aided also by an increasingly liberalised exchange control regime that has made investment overseas progressively easier. There are also many second and third generation Indian origin HNIs across the globe with business enterprises and wealth in their respective countries of residence as well as in India. All this added to the number of India-based HNIs raises some interesting opportunities and challenges.

Unsurprisingly, this has led to the rapid development of private client practice in India, as specialised advice is sought on planning exercises, with particular emphasis on tax, exchange control and other regulatory issues.

Challenges and opportunities 

With this background, it is clear that there are many opportunities in this space, albeit accompanied by certain challenges. While there has been a considerable liberalisation of statutory norms, some limitations remain. For instance, the Liberalised Remittance Scheme (LRS), which enables Indian residents to remit funds and make investments overseas, has undergone extensive amendments since it was first announced in 2004. While the remittance limit has been enhanced (currently USD250,000 per financial year), there are some restrictions that apply in terms of where such funds can be deployed. Similarly, while the extant exchange control regulations do permit non-resident Indians (NRIs) to both invest in and own assets in India, nor to remit funds from India, certain limitations are imposed on both types of transactions – for instance, an NRI cannot make an overseas remittance of more than USD1 million per financial year from India (although there are some exemptions).

In terms of income tax, unlike some jurisdictions, there are few beneficial tax regimes that apply to family offices (for instance, a special regime for family investment funds in GIFT city) or for immigration purposes, and tax exposure can be significant if there are multi-layer holding structures. In addition, while there is currently no inheritance tax regime in place, reports abound that one is likely to be introduced quite soon. In addition, Indian securities laws contain various conditions to be complied with if promoters of listed entities propose to have a family trust to hold their shareholding. Furthermore, while there is currently little to no legislation pertaining to cryptocurrencies and non-fungible tokens, it appears that this space will be subject to increased regulatory oversight.

Interestingly, unlike several countries, India continues to have different personal laws that apply based on the religion of the individuals involved, which can, in some cases, be complex to navigate when considering succession structures, not to mention in administering estates (though there has been an increasing push for a uniform civil code to be adopted). This also means that, apart from contractual arrangements of trusts, there are also some trust-like arrangements that can arise on account of the operation of law, such as the concept of Hindu Undivided Families. Apart from this, due to systemic judicial delays, even uncontested probate proceedings can take a significant amount of time to be granted.

Despite this, the positive economic overview coupled with the acknowledged need for proper thought to be given to such matters has resulted in many opportunities in this space. There is currently a lot of flexibility available to HNIs in terms of possible structures that can be adopted. Furthermore, the current absence of inheritance tax provides opportunities for HNIs looking to set up long-term plans. The increased focus on beneficial economic legislation and the potential further relaxation of exchange control norms in the near future only increases the scope of this space.

Conclusion 

With the existence of such a wide spread of HNIs both in India and abroad, coupled with the complex legal, tax and exchange control regime, it is evident that specialised and nuanced advice is required in order to traverse the various issues and intricacies that may arise, while also giving effect to the ultimate objectives of the client. While the landscape has changed on account of the COVID-19 pandemic and the fallout therefrom, there are possibly greater opportunities available for both clients and advisers to approach this space with a refreshed mindset to adapt to the new normal, with a shift from a more traditional outlook to a dynamic one.