Oliver Wendell Holmes said, “Put not your trust in money, but put your money in trust.”
Trusts or foundations are common forms of entities that are used for protecting family or business assets and proper administration. Global families often use trusts or foundations as models to insulate Indian family assets. This is because India doesn’t have a controlled foreign corporations (CFCs) regime or similar provisions such as transferor trust or grantor trust regime as under the U.S. tax law.
The global movement of Indians around the world with assets situated in India does not void the need to protect and efficiently administer the assets which is achieved and managed with trusts created in India. There are various forms of trusts and the tax treatment depends on the creation of trust as a revocable or an irrevocable trust.
While a trust structure offers protection of assets and good governance mechanisms, there’s a real risk that any foreign structure will be classified as an Indian resident entity if it’s managed and controlled by people in India. Understanding and managing the risk associated with foreign assets to ensure they do not fall into the Indian tax net is imperative with the new age of foreign information exchange.
Our whitepaper titled Interaction of Indian and U.S. Tax Laws covers the different forms of trusts in India and taxation of Indian and foreign trusts in India.