Family businesses
Tax, structure and finance for family-owned businesses and groups, including transactions between family entities and payments to family members. Succession and the entry of the next generation are dealt with from our Nashik office as well.
Last reviewed 1 October 2026
Family businesses form the core of manufacturing and trade in Nashik, and most of their tax and finance questions come from the way the family and the business grew together. A group usually holds several entities, money and assets move between them, and the next generation wants to understand the whole.
The issues that arise in family-owned groups are set out below, with the way we work on them and our approach when more than one generation takes part. Types of work are described and no clients are named.
The issues family businesses face
Most manufacturing and trading businesses in Nashik are owned by families, and a typical group was built one entity at a time. A proprietorship became a partnership firm. Later a private company was formed for the factory in Satpur or Ambad and an LLP for the land, while an HUF kept some of the investments. Each step was reasonable when it was taken. The combined result raises the questions below, stated in general terms as the law stands at 1 October 2026.
Transactions between family entities
The LLP owns the shed and charges rent; the company and the firm bill job-work charges to one another and sell material across. Machines are lent and guarantees given. Each of these requires a fair price and a written basis. Under the Companies Act, 2013, related party transactions require the approvals set out in section 188, and section 185 restricts loans to directors and to entities in which they are interested. For GST, supplies between related persons are valued under rule 28 of the CGST Rules, which refers to open market value, and some of them are taxable even where no money changes hands.
Money taken out of the company
A loan or advance from a closely held company to a shareholder holding 10% or more of the voting power, or to a concern in which that shareholder has a substantial interest, can be taxed as a deemed dividend to the extent of the company's accumulated profits (section 2(40)(e) of the Income-tax Act, 2025; section 2(22)(e) of the 1961 Act). In family companies, notices of this kind frequently trace back to drawings made through a director's current account, and the tax may be raised several years after the money left.
Payments to family members
Salaries paid to the next generation, and remuneration and interest paid to partners, have to be reasonable. Rent paid for a family member's property is judged in the same way: an asset must actually be used, as work must actually be done for pay. Remuneration to working partners is deductible only within the limits in section 35(e) of the 2025 Act (section 40(b) of the 1961 Act). Since 1 April 2025 a firm has been required to deduct tax at source on remuneration and interest paid to its partners (section 393 of the 2025 Act; section 194T of the 1961 Act).
Succession
Shares, partnership interests, property and the business itself eventually pass to the next generation. The transfer has to leave the business able to operate and treat each family member as the family intends. Wills, gifts, family settlements, conversion of firms into companies or LLPs and the division of a group each have their own income tax, stamp duty and GST consequences. Some of those costs can be avoided only where specific conditions are met at the time of the transfer, and they cannot be corrected afterwards.
Bank guarantees and personal exposure
Banks lend to the group against the promoters' personal guarantees and collateral. One entity may borrow on the security of another entity's property, and a family member may remain guarantor for a business that he or she no longer manages. That exposure has to be identified and recorded before any division takes place.
Reporting for the family
Once the second generation joins, the family usually asks for results by plant, product or branch. Household expenses have often passed through the business for years, so the books need a clearer separation between the two.
How we work with family businesses
A map of the group
We begin by drawing the group. The drawing records each entity, its owner and its activity, with every transaction between entities and the agreement that supports it.
Tax for the business and the family together
Returns and tax planning are prepared for the entities and for each family member, so that a decision taken in one place is not reversed by the tax arising in another. See taxation.
Structure and succession
The options for reorganising the group or passing it on are written out, each with its tax and stamp duty effect. The documents are settled with your lawyer. See business advisory.
Monthly reporting
A short MIS pack presents each entity and the group as a whole, and the family discusses one set of numbers.
Working with more than one generation
Family business work seldom stays technical. The founder knows the history of every entity, the next generation asks for clear numbers, and a sibling outside the business has an interest too. Our advice is therefore given in writing, with the facts relied on and the options considered, and every member of the family reads the same document.
That advice concerns tax, accounts and structure. We take no side in a family disagreement, and where a dispute calls for a lawyer or a mediator, we say so.
Where we are the statutory auditor of a family company, section 144 of the Companies Act, 2013 does not allow us to keep its books, run its internal audit or provide management services to it, or to its holding or subsidiary company. Other work for that company, such as tax and GST, needs the approval of its board or audit committee.
Many family groups are also manufacturers or traders, and their sector questions are covered on the manufacturing and traders and distributors pages. We work with family businesses across Nashik district, and with clients elsewhere in Maharashtra, from our Nashik office.
Common questions
Our company pays the rent on the shed owned by our LLP. Is that a problem?
The arrangement is acceptable where the rent is at a fair rate and is supported by a written agreement, the required approvals have been obtained and GST is charged where it applies. Difficulty arises when the rent is fixed for convenience, is never actually paid or changes from one year to the next without a recorded reason.
My son has joined the business. Can the company pay him a salary?
Yes, for work he actually performs, at a level that is reasonable for that work. An excessive payment to a relative can be disallowed in the company's tax assessment. A director's remuneration is in addition subject to its own requirements under the Companies Act.
We want to divide the group between two brothers. Where do we start?
Begin with a map of what each entity owns and owes, and of every guarantee given. The options follow: which brother takes which entity or asset, and the income tax, stamp duty and GST effect of each method. The legal documents are then drafted by your lawyer.
Other industries: Manufacturing, Traders and distributors
Where we work: Chartered Accountants in Nashik, Chartered Accountants for businesses across Maharashtra