21 Oct 2024Quick answer: High-income individuals and NRIs in India reduce tax legally by using provisions built into the law: capital gains exemptions (rural agricultural land, sections 54, 54EC and 54F), the 1 April 2001 fair market value as cost for old assets, DTAA treaty rates, pass-through investment vehicles such as Category I and II AIFs, REITs and InVITs, NPS, and family structures such as HUFs and private trusts. Several deductions work only under the old tax regime, so the regime choice comes first.
Updated: 23 October 2026 | Regi Tom Antony & Associates, Chartered Accountants, Kochi
Advanced tax planning for HNIs and NRIs goes beyond choosing the right investment product. It means structuring income flows, timing asset sales, using treaty positions and applying provisions that lower the effective rate on particular kinds of income, all within the Income-tax Act and FEMA. From 1 April 2026 the Income-tax Act, 2025 has replaced the 1961 Act; the strategies below continue, though section numbers have changed. Section references here are to the 1961 Act, as most readers know them.
First decision: old regime or new regime?
The new regime is the default. It has lower slab rates but allows almost none of the deductions discussed below (sections 80C, 80CCD(1B), 80G and others). The employer's NPS contribution under section 80CCD(2) is the main deduction available in both. Capital gains exemptions under sections 54, 54EC and 54F apply under both regimes. Compare the two every year before relying on deduction-based planning.
1. Rural agricultural land: outside capital gains
Agricultural land in a rural area, outside the limits of a municipality or cantonment board and beyond the specified distance from them (linked to the population of that municipality), is not a capital asset. Gains on its sale are not taxable as capital gains. Check the land's classification and distance before the sale. NRIs can sell agricultural land they inherited or acquired while resident, but can sell it only to a person resident in India who is an Indian citizen.
2. Life insurance: section 10(10D)
Maturity proceeds of life insurance policies are exempt under section 10(10D), subject to conditions. For non-ULIP policies issued on or after 1 April 2023, the exemption is lost where the aggregate annual premium exceeds ₹5 lakh; for ULIPs issued on or after 1 February 2021 the limit is ₹2.5 lakh. Death benefits remain exempt without these limits. NRIs can hold Indian policies on the same basis.
3. Section 54F: reinvesting proceeds of non-residential assets
When an NRI or HNI sells a long-term capital asset other than a residential house (commercial property, shares, gold or jewellery), section 54F exempts the gain if the net sale consideration is invested in one residential house in India, bought within one year before or two years after the sale, or constructed within three years. The exemption is proportionate if only part is reinvested, the investment counted is capped at ₹10 crore, and on the date of sale the taxpayer must not own more than one residential house other than the new one. Section 54 does the same for gains on a residential house, where only the gain needs reinvesting, and section 54EC allows up to ₹50 lakh of gains to be invested in NHAI, REC, PFC or IRFC bonds within six months.
4. Pre-2001 assets: fair market value as on 1 April 2001
For assets acquired before 1 April 2001, the cost of acquisition can be taken as the fair market value on 1 April 2001 instead of the actual cost. For land and buildings, that value cannot exceed the stamp duty value on 1 April 2001. A registered valuer's report should support it. Indexation is no longer available to NRIs (they pay 12.5% without indexation on long-term gains), but the 2001 value alone often reduces the gain on very old family property substantially. For inherited assets, the previous owner's cost and holding period count.
5. Section 80G: planned charitable giving (old regime)
Donations to approved funds and institutions are deductible at 50% or 100% under section 80G, in most cases subject to a ceiling of 10% of adjusted gross total income. Some funds, including the PM National Relief Fund and PM CARES Fund, qualify for 100% without that ceiling. For a year with a one-time income event, a planned donation can offset part of the tax, but only under the old regime and only for income taxed at normal rates.
6. Investment holding: LLP or company
An LLP is taxed at 30% plus surcharge and cess, and a partner's share of its profit is exempt in the partner's hands. A company opting for section 115BAA pays 22% plus 10% surcharge and cess, but dividends are taxed again in the shareholders' hands. For pure investment holding, an LLP usually gives a lower combined rate; a company may suit where profits are to be retained and reinvested. Transferring personal assets into either vehicle can trigger capital gains and stamp duty, so model the transfer cost first.
For a detailed comparison of family LLPs, companies, HUFs and trusts, and the clubbing and GAAR limits, see how wealthy families structure income legally.
7. DTAA: the NRI's most valuable tool
India's tax treaties with over 90 countries prevent the same income being taxed twice and often reduce Indian tax on interest and dividends. Treaty rates vary: under the India-Singapore DTAA, for example, dividends are taxed at 10% where the shareholder is a company holding at least 25%, and at 15% otherwise. To claim treaty rates, give the payer a Tax Residency Certificate and Form 10F (filed online). Without them, TDS is deducted at the domestic rate and the excess can only be claimed back in the return.
8. Category I and II Alternative Investment Funds
SEBI-registered Category I and II AIFs have pass-through status under section 115UB: income other than business income is taxed in the investors' hands, keeping its character, so long-term capital gains are taxed at the investor's capital gains rate. Category III AIFs (hedge funds and derivative strategies) are taxed at the fund level. The minimum investment is generally ₹1 crore.
9. REITs and InVITs
Listed REITs and InVITs distribute income regularly. Each component is taxed differently: interest is taxable, dividends are taxable or exempt depending on whether the special purpose vehicle has opted for the concessional company tax regime, and repayment of debt reduces the cost of the units. Listed units held for more than 12 months qualify for long-term capital gains at 12.5% above ₹1.25 lakh a year. They give real estate and infrastructure exposure without the management of direct ownership.
10. Private family trusts
A private trust lets a family hold assets across generations, with succession outside probate and protection of assets from individual beneficiaries' creditors. Tax depends on the trust type: a specific trust with known shares is taxed as the beneficiaries would be, while a discretionary trust is generally taxed at the maximum marginal rate. A trust is a succession and asset-protection tool more than a tax-saving one. For NRI beneficiaries, distributions abroad must follow FEMA.
11. NPS: sections 80CCD(1B) and 80CCD(2)
Under the old regime, up to ₹50,000 of own NPS contributions is deductible under section 80CCD(1B), over and above the ₹1.5 lakh section 80C limit. The employer's contribution is deductible under section 80CCD(2) in both regimes (up to 14% of salary under the new regime). NRIs can contribute too; contributions from NRE or FCNR funds are repatriable on exit.
12. Hindu Undivided Family (HUF)
An HUF is a separate taxpayer with its own basic exemption and slab rates. Ancestral property, inherited assets and gifts made to the HUF by persons other than its members can generate income taxed in the HUF's hands instead of the individual's. Assets transferred to the HUF by a member without adequate consideration, however, have their income clubbed back with that member. An HUF is available to Hindu, Jain, Sikh and Buddhist families and is best formed when there is a genuine source of HUF property, such as an inheritance.
Frequently asked questions
Which tax-saving strategies work under the new tax regime?
Capital gains exemptions (sections 54, 54EC, 54F), the 2001 fair market value as cost, DTAA rates, the employer's NPS contribution, and structuring through LLPs, HUFs or trusts. Deductions such as 80C, 80CCD(1B) and 80G need the old regime.
Can NRIs claim section 54 and 54F exemptions?
Yes, on the same terms as residents, provided the new residential house is in India.
Is gain on agricultural land taxable?
Not if the land is rural agricultural land as defined, because it is not a capital asset. Agricultural land within municipal limits or the specified distance is a capital asset, and the gain is taxable.
For a detailed guide to NRI tax planning, investment structuring and DTAA optimisation, see NRI Tax Blueprint 2025 by CA Regi Tom Antony, available on Amazon, and nriblueprint.com, our dedicated NRI tax and advisory site.
Regi Tom Antony & Associates advises HNIs and NRIs on tax planning, investment structuring, trusts and DTAA positions. Contact: letstalk@rtaandassociates.com | Kakkanad, Kochi.