Guide to Family Succession Planning and Tax Implications
- Blog|Income Tax|
- 3 Min Read
- By Chetan Kulasri
- |
- Last Updated on 5 February, 2024
Latest from Taxmann
Darshak Shah – Partner | S N & Co.
Table of Contents
1. Case Study on Family Business
1. Case Study on Family Business
- Family Business go for unrelated diversification to cope up рооr communication, structure
- Family Business with several member go for majority poll or if not then delay decision or take low risk
- Trusteeship role builds Perpetuate business, In process younger generation may not get opportunity to cultivate fresh ideas
- Yongsters are ambitious, look modern in short time and existing busines manage by outside professional, so greater possibility of entrepreneurship among young generation
1.1 Solutions
- Family businesses with greater level of professionalisation practiced both in business and family are likely to perform and perpetuate better over a long period of time.
- Large business families are likely to approve new investments in diversified areas in small amounts to test the idea first before considering significant investments.
- Shirt sleeve to shirt sleeve in three generations’ is a myth in growing economies
- Entrepreneurship reflected in terms of starting green field ventures is likely to below in families where family members get groomed into managerial roles in existing firms soon after their studies.
- New ventures are likely to be encouraged in business families when existing businesses are managed by outside professionals, leaving limited openings at senior levels for the family members.
- In family businesses where family members are competent managers, professionals find the environment very conducive to work, and draw synergies.
- Higher the level of mutual respect between family members and outside professionals, greater is likely to be the performance.
1.2 Case Study
2. Taxability of Trust
|
Determinate |
Discretionary |
Foreign |
|
| Status of trust | Beneficiary to extent of share | Beneficiary to extent of share | Beneficiary to extent of share |
| If different then status of trustee | |||
| Residential Status | Beneficiary to extent of share | Beneficiary to extent of share If different then status of trustee |
Beneficiary to extent of share |
| Taxability in hands of | Trustee or beneficiary | Income distributed – Beneficial/trustee
Income not distributed – Trustee |
Refer – Table B |
| Rate of Tax | Normal rate of beneficiary [B&P @ MMR] Or AOP rate | MMR or AOP [exception cases] |
2.1 Table B
| Revocable | Indian settlor | Taxable in his hand |
| Revocable | Foreign settlor | Based on status of beneficiary |
| Irrevocable | POEM | World income is taxable |
| Irrevocable | Foreign & Indian beneficiaries | Indian beneficiary taxed on distribution |
2.2 Case Study
2.3 Case Study – Reconstitution of Firms
2.4 Case Study for Wills & FA
2.5 Objective – What Mr A Wants?
- To distribute assets in ratio of 40:40:20 between wife, brother & mother and to give control of business
- No emotional disputes within family
- Initially shares of A Pvt Ltd. to be distributed equally between brother & wife
- Condition transfer at the time of execution of will
3. Effects of Will
|
Wife |
Brother |
|
A Pvt Ltd. 99 % |
C LLP 75% |
| B Pvt ltd. 60% [ Effective] |
E & F |
| D Pvt Ltd. 40% |
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