High net worth (HNW) individuals in India are increasingly on the hunt for offshore investment, especially after an income tax surcharge was proposed in the 2019 budget.
If the measure goes ahead, HNWs earning over INR50m (£584,700, $729,475, €649,875) would see the peak income tax rate surge to 42.7%, according to data analytics and media company GlobalData.
The firm’s Global Wealth Manager Survey found that taxation is the main concern among local HNW investors.
The report surveyed 24 countries, and India ranked first in terms of wealthy individuals looking for tax advice; around 98% of respondents described their demand as “quite” or “very strong”.
Up your game
GloablData is urging wealth managers in India to provide sound tax advice and cater for HNWs’ desire to channel their assets abroad, or face losing them to offshore providers.
“Tax efficiency is the prime reason why HNW investors hold wealth abroad,” said Heike van den Hoevel, senior wealth management analyst at GlobalData.
“While the importance of this driver is decreasing in most countries in light of the numerous scandals that have shaken the offshore industry, it remains twice as important in India than globally.”
Indian HNWs hold around 16.2% of their wealth abroad, despite the country’s limit on overseas investments.
And while this is quite low compared to the Asia-Pacific average, it is roughly in line with the global average of 16.9%.
Greater competition
“Given the importance of tax as an impetus for holding wealth offshore, this proportion is likely to creep up, with local wealth managers set to compete for a smaller pool of funds,” van den Hoevel added.
“To mitigate the need for HNW investors to channel wealth abroad, wealth managers will do well to up their game when it comes to the provision of tax advice.
“Being able to provide sound advice to help HNW investors reduce their tax liabilities in a legal manner – be it through the use of trusts, insurance policies, or other vehicles – is becoming increasingly important, especially as tax rates for the rich are becoming more and more punitive.”
