Tax Planning for High Net Worth Individuals: 7 Legitimate Strategies for FY 2025-26

With the new tax regime, many HNIs think tax planning is dead. It is not. The strategies have just shifted. Here are 7 approaches I use for my high net worth clients.

1. MAXIMISE NPS CONTRIBUTION
Section 80CCD(1B) allows Rs 50,000 additional deduction over and above Section 80C. This is available even in the new regime if your employer contributes to NPS (employer contribution up to 14% of salary is deductible under 80CCD(2) in new regime). For HNIs with salary income, this is the single best deduction still available.

2. FAMILY TRUST STRUCTURE
For families with substantial assets, a private discretionary trust can be an effective tool. Income can be distributed to beneficiaries in lower tax brackets. But beware — Section 64 clubbing provisions apply for income from assets transferred by the settlor. The trust must be carefully structured with independent assets or inherited wealth.

3. CAPITAL GAINS HARVESTING
With the Rs 1.25 lakh annual LTCG exemption on equity, systematically book gains each year and reinvest. For a family of 4, that is Rs 5 lakh of tax-free gains annually. Over 10 years, this compounds into significant tax savings.

4. SHIFT TO TAX-FREE BONDS
NHAI, IRFC, and REC issue tax-free bonds periodically. Interest is completely exempt from income tax. For someone in the 30% bracket, a 5.5% tax-free bond is equivalent to a 7.86% pre-tax FD. These trade on exchanges — you can buy in the secondary market.

5. AGRICULTURAL INCOME EXEMPTION
Agricultural income remains completely exempt under Section 10(1). For HNIs with agricultural land, ensuring proper documentation and segregation of agricultural vs non-agricultural income is critical. The exemption is real but frequently challenged if documentation is weak.

6. GIFT TO MAJOR CHILDREN
Gifts to major children (above 18) are not subject to clubbing provisions. If your adult children are in lower tax brackets, gifting investments to them can result in income being taxed at their lower rates. Section 56(2)(x) exempts gifts from specified relatives.

7. TIMING OF INCOME AND EXPENSES
For business income, legitimate deferral of income (advance billing in next FY) and prepayment of deductible expenses (insurance premiums, repairs) can shift taxable income between years. This is basic but many HNIs with business income overlook it.