21 Oct 2024Updated: May 2026
High-income individuals and NRIs in India have access to a range of legally permissible tax planning structures that go well beyond the standard Section 80C investments. These strategies are not loopholes — they are provisions deliberately built into the tax framework to incentivise specific economic behaviours: long-term investment, housing, infrastructure, pension savings, and business risk-taking. Used correctly, they can significantly reduce effective tax rates without any aggressive positioning.
DTAA: The NRI's Most Valuable Tool
India's Double Taxation Avoidance Agreements with over 90 countries ensure that NRIs are not taxed twice on the same income. The DTAA positions vary by country and income type — for example, the India-UAE DTAA does not provide for capital gains taxation rights to India on gains arising to a UAE resident from sale of shares in Indian companies (subject to conditions), and the India-Singapore DTAA limits withholding tax on dividends to 10%. To claim DTAA benefits, the NRI must provide the bank or payer with a valid Tax Residency Certificate (TRC) from the country of residence and complete Form 10F annually. Without these documents, the payer is required to deduct TDS at the higher domestic rate.
Alternative Investment Funds (AIFs)
SEBI-registered AIFs — particularly Category I and Category II AIFs — have a pass-through tax treatment under Section 115UB of the Income Tax Act. Income and gains of the AIF are taxed in the hands of investors, not at the fund level. This means long-term capital gains from AIF investments retain their LTCG character and applicable rates in the investor's hands. Category III AIFs (hedge funds, derivatives-focused) are taxed at the fund level. For HNIs with ₹1 crore or more to deploy in alternative assets, Category II AIFs investing in private equity, venture debt, or real estate provide diversification with tax efficiency.
REITs and InVITs
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) listed on Indian exchanges distribute income quarterly. The tax treatment of distributions depends on the component: dividend income, interest income, and return of capital are taxed differently. Long-term capital gains on REIT/InVIT units held more than 12 months are taxed at 12.5% above ₹1.25 lakh. For investors seeking regular income from real estate or infrastructure without the management burden of direct ownership, listed REITs and InVITs are a tax-efficient alternative.
Private Family Trusts
A private discretionary trust allows high-net-worth families to hold and manage assets across generations while providing trustees the flexibility to distribute income and capital based on beneficiaries' needs and tax positions. Income of a private trust is taxed at the maximum marginal rate in the trust's hands unless distributed to beneficiaries — at which point it is taxed at the beneficiary's applicable rate. The primary benefits are estate planning (assets in trust pass to beneficiaries without a formal succession process), asset protection (trust assets are generally insulated from personal creditors of the settlor), and income splitting across beneficiaries in lower tax brackets.
Section 80CCD(1B) — Additional NPS Deduction
Over and above the Section 80C limit of ₹1.5 lakh, an additional deduction of up to ₹50,000 is available under Section 80CCD(1B) for contributions to the National Pension System. This is available under the old tax regime. Combined with the employer's NPS contribution deduction under Section 80CCD(2) — which is available under both regimes — NPS is one of the most tax-efficient long-term savings vehicles available.
HUF Structure
A Hindu Undivided Family (HUF) is a separate tax entity that is assessed independently from its individual members. Business income, rental income from joint family property, and inherited assets can be assessed in the HUF's name, effectively splitting income across two tax returns (individual and HUF) and utilising two sets of basic exemptions and lower slab rates. The HUF structure requires appropriate documentation and is best set up at the time of marriage or inheritance — retrofitting existing assets into an HUF later can attract scrutiny.
For a detailed guide to NRI tax planning, investment structuring, and DTAA optimisation, refer to NRI Tax Blueprint 2025 by CA Regi Tom Antony — available on Amazon. For NRI advisory resources, visit nriblueprint.com.
Regi Tom Antony And Associates provides high-net-worth tax planning, NRI investment advisory, trust structuring, and DTAA compliance for individuals and families across India and abroad. Contact: letstalk@rtaandassociates.com | Kakkanad, Kochi.