Tax Planning For High-Net-Worth Individuals

Last Updated: 19 Sep 2025

Tax planning is important for high-net-worth individuals (HNIs) in India to deal with complex financial issues. With complex tax mechanisms and frequently changing laws, HNIs also need to adopt effective tax planning strategies.

By making sound financial decisions, HNIs can mitigate the tax outgo and also make their wealth grow.

Read on as we discuss tax planning for high-net-worth individuals to protect their wealth and grow it further.

Who are HNIs?

HNI stands for High Net Worth Individuals in its entirety. An HNI is typically referred to as one with investible assets of over INR 5 crore in India, but the level might vary. These are usually well-off professionals, business owners, corporate leaders, entrepreneurs or rich heirs.

Understanding the Tax Arena for HNIs in India

India has a progressive tax system. This means tax rates rise as income rises.

High-net-worth individuals (HNIs) are those earning more than ₹50 lakh a year or having wealth above ₹5 crore.

Residents pay tax on global income. Non-residents pay tax only on income earned in India.

HNIs also pay extra charges like surcharge and cess. Income between ₹50 lakh and ₹1 crore attracts a 10% surcharge. Income above ₹1 crore attracts a 15% surcharge.

Because of these higher taxes, HNIs need careful tax planning to save money and protect wealth.

Key Components of HNI Taxation

Here is an overview of taxable income for HNIs:-

Salary Income

Salary income comprises the fundamental salary, allowances, bonuses, commissions, and additional benefits received from employment engagements.

Business Income

Any income on account of business or profession includes, among others, income arising from consultancy services, freelancing, partnership, proprietorship and other entrepreneurial engagements.

Short-term and Long-term Capital Gains

Short-term profits are from sales of securities other than those of AIFs and losses on sales of securities with an acquisition period lower than 24 months (36 months for immovable property). Long-term capital gains, on the other hand, include gains from assets held for over 24 months (36 months in case of immovable property).

Rental Income

Also, taxes on income from rental properties (residential or commercial) form part of the taxability of HNIs.

• Renters of property are generally required to report and satisfy their rental property tax liabilities.
• Rental income may be subject to tax by the method of computing profit, deducting certain expenses, such as property tax, mortgage interest, repairs, and depreciation.
• If you are looking to invest in premium rental-yielding commercial properties in India, we urge you to browse through our collection.

Domestic and International Income

HNIs are often globally spread and have a source of income from both domestic and international origins. Laws in many countries require people to report and meet taxation requirements on income from around the world.

As a result, HNIs can earn tax on income earned both domestically and internationally, depending upon the tax structure in force in their country of residence.

Additionally, one should know that HNIs in India are taxed on both global and domestic income. For residents, tax on their global income and for non-residents, only on income earned in India, is levied.

Other Sources of Income

Income from streams, including dividends earned by HNIs on their holding in companies, is taxed as well.

The dividend tax rate can be different from the income tax rate. It could vary depending on factors like the type of dividend and the taxpayer’s tax bracket.

The interest earned on bank deposits, bonds, or other interest-bearing investments is usually considered to be taxable income and is taxed as personal income.

Importance of Tax Planning for HNIs

It is the need for tax planning while dealing with high-net-worth individuals. There are many advantages to proactive tax planning.

• Maximising Tax Savings

Tax planning enables High Net Worth Individuals (HNIs) to take advantage of available deductions, exemptions, and credits and accordingly reduce their tax liability within the ambit of law. With smart management of what they earn and invest, HNIs can reduce their tax payout and optimise their after-tax income.

• Optimising Investment Decisions

Tax planning is also critical for aiding high-net-worth individuals (HNIs) to choose their investments wisely. This eases the expense of eligible tax-efficient investments/strategies or the opportunity to benefit from tax-exempt or tax-deferred investments.

• Risk Management

Proactive tax planning helps manage and mitigate possible tax risks efficiently. Managing their financial receipts and dealings as per the tax statutes is crucial. This can mitigate the risks of investigations or any default-related penalties.

Investment Options for HNIs To Save Taxes

Some tax-saving investment options for HNIs are as follows:

Equity Linked Saving Schemes

ELSS is a popular tax-saving plan for high-net-worth individuals in India. It provides an opportunity to earn returns and save on tax at the same time. For HNIs, there are ELSS mutual funds, which have a three-year lock-in period and offer tax benefits under Section 80C of the Income Tax Act.

National Pension Scheme

NPS is a long-term investment for retirement. It also gives tax benefits. HNIs can claim an extra deduction under Section 80CCD(1B), apart from savings under Section 80C.

Unit Linked Insurance Plans

ULIPs offer both insurance and investment. HNIs can get tax benefits on premiums and returns under Section 80C.

Tax-saving Fixed Deposits

HNIs have access to tax-saving fixed deposits, which banks offer. These are non-callable fixed deposits for a lock-in of 5 years & provide tax benefits as per section 80C of the Income Tax Act.

Public Provident Fund

PPF is a long-term investment option with tax benefits. Even HNIs can invest in PPF and get deductions under Section 80C of the Income Tax Act. Also, interest income and maturity proceeds from PPF investments are tax-free.

What are the Deductions and Exemptions for HNIs?

The exemptions available for HNIs are as follows:

House Rent Allowance (HRA)

HNIs can claim a tax deduction on HRA. The deduction is the lowest of these: actual HRA received, 50% of salary in metro cities (40% in non-metro), or rent paid minus 10% of salary.

Leave Travel Allowance (LTA)

Exemption is allowed on travel expenses within India for self and family, subject to certain rules.

Medical Expenses

Deductions are available for health insurance premiums under Section 80D for self, spouse, children, and parents.

Section 80C

Up to ₹1.5 lakh can be claimed for investments and expenses like PPF, NSC, EPF, tax-saving FDs, life insurance premiums, children’s tuition fees, and home loan principal repayment.

Section 80G

Donations to approved charities are eligible for deductions.

Tax Planning Strategies for HNIs 

The tax burden on High Net-Worth Individuals (HNIs) is usually high due to their income and investments. But they can minimise this liability with prudent tax planning. Here are some great tax strategies for high net worth individuals: .

1. Diversify Investments

HNIs can save taxes by investing in ELSS, ULIPs and tax-free bonds. These alternatives offer both growth and tax advantages.

2. Use Trusts for Estate Planning

Setting up family trusts allows smoother wealth transfer and reduces inheritance-related tax issues. It also protects assets for future generations.

3. Optimise Capital Gains

HNIs should plan the timing of selling assets like property or shares. Using exemptions under sections such as 54 and 54F can reduce capital gains tax.

4. Take Advantage of Deductions

Deductions under sections 80C, 80D, and 80G for insurance, health expenses, and donations can lower taxable income.

5. International Tax Planning

For HNIs with global income, choosing the right residency status and using Double Taxation Avoidance Agreements (DTAA) helps prevent paying tax twice.

Conclusion

It is becoming more and more crucial to do tax planning for high-net-worth individuals in India. HNIs can save taxes and earn returns on the savings if they use deductions, exemptions and tax-efficient investments well. Seeking advice from professionals can lead to strategies tailored to personal needs that abide by the law. HNIs can protect, preserve and achieve their financial goals through sound financial planning.

Frequently Asked Questions

In what ways are trusts shown to be used in the tax planning of highly appreciated individuals?

Trusts are the most crucial part of the tax planning of HNWIs; among their perks, one can access the issues of real estate protection, the minimisation of estate gifts, and probate now. While different types of trusts cover various objectives, e.g., revocable, irrevocable, and charitable trusts, clients can choose the trust that will serve them best.

Would high-net-worth individuals who plan to die know the best ways to avoid, lessen, or pay for inheritance tax?

Estate tax sheltering tactics for HNWIs could include the employment of trusts, lifetime giving, buying life insurance, and charitable planning. Hence, correctly picking this tool can help individuals eradicate the tax effect by passing on the wealth to the beneficiary or heirs.

What tax planning issues are likely to impact the operations of high-net-worth business owners?

Entrepreneurs are subject to many challenging issues, such as business form choice, succession planning, and how to dispose of the business. Entering business dealings and running business operations tax-efficiently for high-net-worth entrepreneurs can add value to their profitability and preserve wealth.

What will be the outcome of tax planning at the international level from the point of view of highly situated global investors with worldly assets?

International tax planning is crucial and, thus, is truly in use for those HNWIs who possess global assets and/or live in several jurisdictions. Tax treaties, foreign tax credits, and foreign subsidiary structures are among the many efficiency and compliance enhancement strategies used by individuals with broad exposure to tax residency issues.