Personal tax reforms from NRIs perspective
“Country roads, take me home to the place I
belong”- hums Mr. Anuj Kumar Gupta, an IT professional and a Non-resident
Indian residing in the United States. Recently, India is witnessing many of its
“pravasis” including Mr. Gupta’s keen desire to connect with
and even dream of finally returning to India.
As India emerges in
the wake of the global recession as an “extraordinary country” could
the Hon’ble Finance Minister take a cue and woo India’s diaspora for
the social, political and economic upliftment of the country?
Mr
Gupta believes that the time is right to do so. While he is elated with the
policy decisions taken by the Indian Government for protecting the interest of
its pravasis, most recently on voting rights for non-resident Indians, much more
is needed. The Prime minister has at the Eighth Pravasi Bhartiya Divas mentioned
in the context of NRI’s as investors that “Most remittances are
placed in bank deposits. Foreign Direct Investment in India by overseas Indians
is low and far short of potential”.
Here are some suggestions
for reforms to kindle the diaspora’s interest in India.
Broadly speaking, as per the provisions of the Income-tax Act, 1961,
an NRI is an Indian citizen or a person of Indian origin who is not a resident.
An individual is resident in India, if he is in India in that year for a period
of 182 days or more subject to further conditions.
These NRI’s
own and acquire various interests in India through movable and immovable
properties and may carry on and possess income generating resources or
activities liable to tax in India.
However, Mr. Gupta makes a valid
point that the treatment of the Indian Government of the NRI’s is
piecemeal and they have to go undergo the procedural labyrinth with multitude
authorities under various laws. He questions as to why the Indian Government
does not deal with NRI’s in a holistic manner under one Act and with a
single window clearance.
Even without changing any substantive
provisions as suggested hereafter, this one window clearance will itself be of
immense convenience and clarity to them. He says that in view of the recent
meltdown of banks in the US and the share market, the overseas Indians have
realised that Indian banks and investments are much safer. However due to the
lack of incentives and support by appropriate laws, machinery and attitude, the
NRI’s are discouraged in coming to invest in India in a big way.
These are valid points to be addressed by the Indian Government to
attract NRI investments in India not only to augment its foreign exchange, but
also strengthen ties with its diaspora.
• The
Indian income exempt from tax for a non-resident Indian for AY 2010-11 is INR
1,60,000. A higher limit is prescribed for a resident woman or a resident senior
citizen being INR 1,90,000 and INR 2,40,000 respectively. The higher exemption
limit should also be made available to non-resident women and non resident
senior citizens.
• In
case of deposits in NRE and FCNR accounts, an NRI is not liable to pay tax. But
interest on NRO accounts invites tax. The Government could consider exempting
the same from tax upon fulfillment of stipulated conditions.
The current
rate of interest on bank deposits held by non-resident
Indians
requires revision to bring them on par with resident accounts.
• The recent
lack of interest of many overseas Indians to invest in the reality sector is
perhaps due to the long delays in completion of projects and some differences
on the loans granted to NRI’s as compared to residents. Though NRI home loans
are available but some differences may still exist between the two kinds of
loans, in terms of tenure, documents, repayment and so on. Such anomalies
require correction.
• NRIs may not
be able to claim tax benefits on home loans in India as they have to pay tax in
the host country. But, if they pay tax in India
for income earned in India,
they can claim tax rebate for the home loan.
• The rental
income earned in India by non resident Indians are subject to tax withholding
at the rate of 30 percent as opposed to 10 percent for resident Indians. This
necessitates filing of a return where a loss is computed under the head “Income
from house property.”
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