Tax Loss Harvesting & Estate Planning for Cross-Border Holdings

On the Indian tax side, the FY24+ regime applies to redemptions from international mutual funds. Holdings above 24 months attract long-term capital gains tax at 12.5 percent without indexation benefit (Section 112A and the post-Finance Act 2024 rationalisation). Holdings under 24 months are taxed at slab rate as short-term capital gains. Indexation benefit, which previously cushioned long-horizon international FoF investors, is no longer available for international funds. The practitioner uses tax loss harvesting within this framework — booked losses on under-water international holdings can offset gains on other international or domestic non-equity holdings within the same financial year, with carry-forward of unabsorbed losses for 8 assessment years subject to filing discipline. The harvesting calendar is FY-bound: the practitioner reviews unrealised gains and losses across the international book in February-March of each FY and books strategic redemptions and re-entries to crystallise losses. Wash-sale rules do not apply in India, so immediate re-entry into the same scheme is permitted, though the practitioner must consider exit load and re-entry friction. Disclosure under Schedule FA is mandatory and entirely separate from the tax computation. Every Indian resident must report all foreign assets and foreign-source income in Schedule FA of the income tax return, regardless of whether the asset has produced taxable income. This includes direct US brokerage holdings, foreign bank accounts, foreign mutual funds (held outside India), foreign property, foreign trusts, and any beneficial interest in foreign entities. The Black Money Act 2015 creates a separate penalty regime for undisclosed foreign assets — a flat 30 percent tax on the asset value plus a penalty of 90 percent of the value, plus prosecution exposure with imprisonment of 3 to 10 years for wilful concealment. The Schedule FA disclosure obligation applies even where the foreign asset has produced no income; the act of holding the asset undisclosed is itself the offence. Indian-domiciled international mutual funds (FoFs and direct international funds held through Indian AMCs) are not foreign assets for Schedule FA purposes — they are Indian mutual fund holdings. Direct US brokerage accounts, GIFT IFSC products, and offshore-domiciled funds held directly are foreign assets and trigger Schedule FA reporting. On the US estate-tax side, IRC §2103 imposes US federal estate tax on US-situs assets owned by non-resident aliens at death. The exemption for non-resident aliens is only USD 60,000 — far below the USD 13+ million exemption available to US citizens and residents. US-situs assets include direct holdings of US-listed stocks, US-listed ETFs, US real estate, and certain US-domiciled mutual funds. Above the USD 60,000 threshold, the marginal estate tax rate rises rapidly, reaching 40 percent on amounts above USD 1 million. For an Indian resident with a USD 500,000 direct US brokerage account, the US estate tax exposure on death is approximately USD 175,000-180,000. GIFT IFSC products structured as Indian-resident holdings of IFSC-domiciled funds avoid the US estate-tax exposure because the asset is not US-situs — the Indian investor holds an IFSC unit, not a US-listed security. Indian AMC international FoFs similarly avoid the US estate-tax exposure because the underlying US ETF is held by the Indian AMC, not the Indian investor. RNOR transition planning matters for returning NRIs. A Returning Resident with RNOR status enjoys a transitional period (typically 2-3 years) during which foreign income and foreign asset disposals are not taxed in India. The practitioner uses this window to reorganise foreign holdings — closing foreign brokerage positions with embedded gains, transitioning NRE deposits to NRO, simplifying foreign mutual fund holdings — before the resident-and-ordinarily-resident (ROR) status crystallises and global income becomes taxable in India. NRE/NRO reorganisation on return requires re-designation of accounts, rebalancing of currency exposure, and Schedule FA disclosure of any retained foreign accounts. Succession planning across jurisdictions is the most complex layer. A will executed in India does not automatically have effect over foreign assets; some jurisdictions require local probate, others recognise foreign wills with apostille, and a few (notably the US) require situs-state probate for real and tangible property. The practitioner coordinates with cross-border legal counsel to either consolidate foreign holdings into structures that bypass probate (e.g., trusts, joint holdings with rights of survivorship where permitted, beneficiary-designation structures) or to draft separate jurisdictional wills that operate consistently with the master Indian will.