NRIs seek relief on tax structures in India

Aden - Yasmine El Tohamy - EASING TAX STRUCTURES: The government should create special pension and medical plans for Indians returning after a certain age as it is difficult to get appropriate medical policy as present schemes are outdated. - Reuters

Prime Minister Narendra Modi's government is tapping possible options to ensure its goal of a $5trillion economy by 2025 is achieved and Economic Survey tabled on Friday voices out the same. The NRIs in the UAE are however anxiously waiting to see as to what tax sops will be introduced today as the budget gets unveiled for the government to retain the confidence of domestic as well as foreign investors.

Currently rules governing NRI residential status are completely outdated specially for returning Indians. At present after two years of returning to India, even the foreign income is taxable. If someone lives in India for 182 days, he/she loses NRI status. It is outdated and NRIs are looking for complete overall residence status in line with international taxation laws. 

Naveen Sharma, head accounting, audit & advisory services Focus Group (AAA) said: "We are in the era of startups and innovation. NRIs are expecting that their foreign income must not be taxable even after returning to India for at least five years. It will encourage NRIs to start business in India while at the same time, they can focus their life outside India. Moreover, NRIs expect to liberalise custom duty exception on foreign products like electronics, gold, etc. which NRI brings with them. Increase the tax slabs to ?5 lakhs will also encourage more NRI investments in India."  

Indians who work in the Gulf have most of their family back in India and they contribute in large remittance of money from gulf countries to India. "Government should create special pension and medical plans for Indians returning after certain age as it is difficult to get appropriate medical policy after certain age as present schemes are outdated," added Sharma. 

The concept of Place of Effective Management (POEM) causes discomfort to certain foreign companies, having roots in India, in terms of its control and management. The guiding principles of POEM requires toning down of certain conditions, so that genuine foreign companies earning income outside India are not treated as Resident of India for imposing tax in India on such overseas income, pointed out T.N.Manoharan, chairman, Canara Bank. 

"Increase in threshold of exempt income and measures to ease out tax compliance for NRIs for filing tax returns and to comply with transfer pricing rules would be appreciated," said Manoharan.

Investments and tax structure

Dividend Distribution Tax (DDT) is currently charged at an effective rate of 20.55 per cent, which is high and there is uncertainty in availing credit of such tax in overseas jurisdictions. If the DDT is reduced in the range of 10 per cent to 15 per cent it would augur well, according to Manoharan. 

 Any transfer, made outside India, of a capital asset being Rupee Denominated Bond (RDB) of an Indian company issued outside India, by a non-resident to another non-resident is exempt from tax. In order to boost investments, similar exemption may be provided in case of Foreign Currency Denominated Bonds issued by Indian Companies. Further, exemption may be provided for buyback of RDBs by Indian companies from non-resident investors.

 NRIs currently are not allowed to make fresh deposits to Sovereign Public Provident Fund (PPF) accounts but they are allowed to hold their pre-existing PPF accounts, which were opened while they were resident, until maturity period, which is 15 years. However, even pre-mature withdrawals are not permitted except under certain circumstances like medical and educational purposes. For NRIs guidelines for deposits and withdrawals of PPF account may be relaxed.

 NRI's are allowed to hold properties in India. Any sale of such property is subject to tax at the rate of 20 per cent to 30 per cent (depending on whether its short term or long term). In case the transferor is a resident, then TDS has to be paid at the rate of 1 per cent under Section 194-IA. However, Section 195 dealing with payments to non-residents specifies TDS at 20 or 30 per cent, as applicable. 

"It would be a well appreciated move if Non-residents are also able to calculate income tax on an ongoing basis which would give them the bandwidth of reducing cost of acquisition, cost of improvement and also claiming specified deductions in computing capital gains. Currently to tide over this problem NRI's have to apply to tax officer in India seeking approval for deduction of TDS at Nil rate or at a lower rate," added Manoharan. 

Dilip Sinha, acting coordianator-general, IBPC Dubai, said: "As we have seen that the previous budgets have nothing significant for NRIs. Not only NRIs but everyone is expecting a big-bang budget. Everyone is expecting some reliefs and benefits in this year's budget. From NRI prospective, they hope to get some rebate on investments done by them in India. The income from their investment should be taxed at lower price."

Moreover, Indians staying in abroad specially in Gulf countries like to buy gold and electronics (TV) due to the quality and price difference. Hence reduction in custom duty can boost NRI investments in gold and confidence in Modi government.

"As we all know, Indian economy is under stress and government has to take immediate action to re-build the economy and confidence. NRIs plays a vital role in growth of Indian economy and there are one of the main source for remittances in India. Policies like ease in investment, lower income tax, can really boost NRI investment which in turn will boost Indian economy," said Sinha.  - [email protected]

Sandhya D'Mello

Journalist. Period. My interests are Economics, Finance and Information Technology. Prior to joining Al Khaleej Today, I have worked with some leading publications in India, including the Economic Times.