Over the past few years, many Indian business families have established estate planning structures, many of which comprise one or more family trusts. The main driver for these structures would have been tax driven considerations. Under the recent Finance Bill, 2017 (Finance Bill), there was a key amendment proposed to the Income-tax Act, 1961 (IT Act), which if passed would have had a significant impact on existing and future estate planning structures – by way of a ‘gift tax’ in respect of assets received by taxpayers without consideration or for inadequate consideration (Proposed Amendment).

Subsequently, the Proposed Amendment has been further amended by the Finance Act, 2017, as passed by the Parliament on March 30th, 2017 (Finance Act). In this article, we discuss the said amendment to the gift tax regime.

Under the IT Act, gifts received by individuals and Hindu Undivided Families (HUFs), were taxed, subject to tax certain conditions and exceptions. However, other tax payers, such as unlisted companies, partnership firms and limited liability partnerships were not subject to gift tax, except if they receive shares of unlisted companies without consideration or for inadequate consideration. However, certain exceptions, namely receipts from relatives, gifts on occasion of marriage, etc had been retained.

In order to remove this disparity, the Finance Act provided that the ‘gift tax’ regime shall apply equally to all tax payers post April 1st, 2017.

Continue Reading Update on Finance Act, 2017: A lucky escape for Trusts

On February 1st, 2017, the Indian Finance Minister, Mr. Arun Jaitley, presented the Government of India’s annual financial statement for 2017-18, commonly referred to as the Union Budget. As is tradition, the Budget was accompanied by proposals to amend the direct tax regime contained in the Indian Income-tax Act, 1961 (IT Act).

Two proposed amendments, in particular, will cause considerable angst to estate practitioners across the country as they are likely to have a significant impact on estate planning structures commonly used in India. Ultimately, it will be Indian families looking at undertaking their succession planning, who will suffer when dealing with the consequences of such amendments.

The first proposed amendment relates to a ‘gift tax’ in respect of assets received by taxpayers (assessees) without consideration or for inadequate consideration. The other pertains to an ‘additional dividend tax’ on dividend income received from companies in which the taxpayer holds shares.

Notably, neither of these proposed amendments introduces a new levy. Instead, they attempt to plug gaps in the IT Act, which presently exclude certain assessees from the ambit of existing taxes. But if these proposed amendments are passed in their current form – as it is likely they will be – they are expected to considerably reduce the fiscal efficiency, and consequently attractiveness, of trusts as estate planning tools. Continue Reading Union Budget 2017: Impact On Estate Planning In India