BUDGET 2017 – What NRIs expect and hope for!

Budget 2017_NRIs

The waves that the demonetisation policies created across the NRI community across the globe in November, 2016 have laid grounds for anxiety over the next major step that the Indian government will present – the Budget, 2017. Given that the budget is to be presented in just a few days there is a lot of speculation about what the NRI community will face in terms of the rules on taxation and other aspects.

On the whole, it is generally perceive that the ongoing approach of policies like the demonetisation, the GST and other major steps in the past one year or so, could help create higher tax compliance and hopefully, a wider tax base too. One of the major expectations of people from this year’s budget is lower tax rates.

People expect that the Income Declaration Scheme of the Modi government, announced in 2016, will add to the revenue collection of the government. If one were to assume that there is close to Rs 75,000 crores declared as black money that means at tax rates of about 45%, almost Rs 35000 would get collected as taxes! The government also hopes to gain significant amounts from the Pradhan mantra Garib Kalyan Yojana 2016 (PMGKY).

Overseas citizens perhaps wait with a tentative wish-list in mind. Amongst the major steps that the NRIs expect to be taken in the current budget, the following stand out prominently.

  • A Rational Tax Refund procedure:
    • Tax filing has been electronic for some time now.
    • However it is not so easy to get the refunds tracked or even get these done easily.
    • If anybody were to be in a position to have a refund of more than Rs 50,000 he would have to collect it in paper format, meaning that somebody has to collect these cheques on his behalf and also get them credited within the designated time.
    • Sometimes, NRIs might not have accounts in India and in such cases it would be very tough for them to get access to the money.
    • It is impossible to get a direct remittance done to foreign bank accounts of NRIs.
    • It is important to address the above complication. There should be ease of transfer of the money through wire transfer or other electronic method.
  • TRC or Tax Residency Certificate –
    • This is a major complexity created in the system.
    • TRC is a certificate required from the Tax Authorities of the country where the NRI resides so that he can qualify for the benefits under the ambit of the country’s tax treaties with India.
    • To add to the complications, Indian Tax authorities usually demand the TRC while acting on the tax relief.
    • If NRIs could be given relief on this front and have the concession of only producing the passports or the resident country’s tax return to claim their tax relief.
  • Taxation at par –
    • NRIs fairly expect to be treated at the same level with residents.
    • While resident Indians pay the TDS (tax deducted at source) only on incomes earned beyond a certain level, this is not so with Non-Residents.
    • Overseas citizens have been hoping that the system is modified to impose same rates for all, irrespective of their status in terms of residency.
    • In addition, NRIs hope that the rules for them to pay taxes on Capital gains are also revised and modified to suit their comfort levels.
  • Property Tax Laws –
    • Tax laws are not clear regarding the sale of property in India.
    • Any payment that an NRI receives from any buyer gets scrutinised for TDS rates that could be as high as 20-31%.
    • Further, there are some aspects that NRIs would do well to remember while buying Property in India-
      • If a person owns more than one property in India, as per Indian laws, only one property can be considered self-occupied for the purpose of taxation
      • All other property will be considered to be on rent and an NRI will be liable to pay tax on such properties
      • The same rule applies for inherited property too.

While NRIs are waiting and hoping for major considerations in the forthcoming budget, it remains to be seen how much is actually implemented.

Demonetisation- Sixty days of extended relief for NRIs

Demonetisation Sixty days of extended relief for NRIs

As the country waited for the Prime minister’s speech on 31st December 2016 with anxiety and anticipation, the RBI prepared some more guidelines to make demonetisation a relatively process for the NRIs. Midnight, the central banking authority of India declared that it was extending the date by which the NRIs can exchange their banned notes.

  • Instead of March 31, the NRIs can now exchange the old 500 and 1000 rupee notes till June 30, 2017.
  • The facility will be available through Reserve Bank offices at Mumbai, New Delhi, Chennai, Kolkata, and Nagpur.
  • However, Indian citizens resident in Nepal, Bhutan, Pakistan and Bangladesh cannot avail this facility.
  • The customs officials have prepared a one-page form that will have to be filled up by the NRIs when they come to India, to declare the details of the money they are bringing in.
  • Then the demonetised currency along with the form has to be submitted to the specified RBI branches.
  • The money being brought into the country by NRIs, as earlier, remains subject to the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015.
  • NRIs will also have to submit a copy of their passports with immigration stamps to prove that they were not in the country between November 9 and December 30, 2016.
  • In case any person is aggrieved by any refusal on the part of the RBI to credit the value of the demonetised notes, he or she can complain within fourteen days to the Central Board of the RBI, Mumbai.

Almost two months after the government came up with the massive demonetisation process, here are some of the trivia on the step taken:

  • Prime Minister Modi brought on this shock treatment for the Indian economy with two purposes in mind-

–  Eradicate black money from the economy

– Remove the circulation of fake money supply that the government claims has come from Pakistan

  • As of November 9, a day after the demonetization process, there were approximately Rs 15.44 lakh crores afloat with the public in the form of the high demonetisation notes.
  • Between then and now, there has been a huge amount that has come into the banks as deposits-however; best to wait until March 31 and wait for the central bank gives one figure for the entire period of November 8 to then.
  • The figure for mid-December was approximately Rs 12.44 lakh crores – about 80% of the amount in circulation pre demonetisation.
  • Over time, the restrictions on cash withdrawals have been modified for customer convenience – the limits for ATM withdrawals have been increased from Rs 2500 to Rs 4500. The weekly limit, however, remains Rs 24000.
  • It is said that there could be some possible benefits of this process: 90% of economic transactions in India are done with cash. Lack of cash could give a push to other alternatives – the country might just be on its way to becoming a cashless economy.
  • The other side to all of this is that a highly cash based economy suddenly went into a lurch and people are still trying to find a path forward.
  • It would work well for the country to give this process a few months before any substantial effect is seen.
  • With black money being out of circulation, people expect real estate prices to fall too (more on that in blog in the next few days-keep watching this space on our website).
  • Construction, Textiles, and Infrastructure sectors are also industries that could take a hit due to the demonetization process. Labour intensive areas of work are expected to be affected.
  • The big picture effects on jobs in the economy would depend on how fast the Indian economy rises back from this process, how soon the money supply gets restored and when the limits on cash withdrawals are removed.
  • The government expects that the multiplier effect of having hoarded money being reintroduced into the economy would give the economy a boost.

Announcements and predictions are consistently being made regarding the demonetization process. While we make an effort to keep you updated, sometimes the frequency of the notifications cannot be matched. We advise you to keep checking the RBI website for the latest on this process and more.

DEMONETISATION – THE SOCIAL IMPACT

DEMONETISATION SOCIAL IMPACT

Post November 8, the country has been debating on whether it helps to have a cashless economy or not. With that, there have been discussions going on about how exactly to convert the economy into a digital one. Somewhere in the background, this move towards turning into a cashless economy has shown its effect on the social set up too. First, Demonetisation has brought the trafficking of women and girls for sex work to a stop. It has been estimated that this has been a Rs 20 trillion industry.

The process of trafficking of women is usually completed by November, after which trafficked women and girls are transported to various parts of the country to be sold to brothels, placement agencies and as child brides. Post demonetisation and the withdrawal of the Rs500 and Rs1000 currency notes, this trade, is said to have suffered a significant blow. Typically, the sex trafficking is carried on from Guwahati in Assam, Jharkhand in the North and Chennai, Bangalore and Hyderabad in the south. There hasn’t been any record of even one girl being trafficked in the past one month. Transactions related to this trade were carried out in cash. With the supply of notes in the economy reduced, people were suddenly left with no liquidity to pay to the middlemen.

Sex trafficking is one of India’s biggest organized crime rackets. The “cost” of a woman or girl is usually pegged at Rs2.5 lakh. This includes the cost of transporting her, paying off local politicians, authorities and police officials and finally, the cost of grooming her. Actual costs, however, are as low as Rs 20,000. The remaining Rs 2.3 lakh is taken by the trafficker or the middleman. A study by Global March against Child Labour (a network of trade unions, teachers, and civil society organizations) has estimated that the annual figure in India for this kind of trafficking is about Rs 18.6 trillion.

Cash payments dominate the category of prostitution too. There have been many media reports of sex service workers asking clients for digital payments – something that could prove to both awkward and arduous for people who indulge in these services.

One of the major impacts of the demonetisation process has also been felt in the Narcotics Trade. This has been another huge section of trade, and most marketing takes place through Afghanistan and other ports. Black money rules this business. In Maharashtra and Himachal, drug trade came to a virtual standstill after the government announced demonetisation. Drug peddlers found it difficult to sell their stock after high-value currency went missing from the economy. Even small transactions were affected – with most of the drug players having gone into hiding till the market gets into revival mode. Supply of narcotics from Jammu & Kashmir and Himachal Pradesh into Maharashtra and other states has also gone down. The Narcotics Bureau has found that while the drug detection rate might be the same as before demonetisation, the quantity of drugs seized from the peddlers now is much less than earlier.

With all this, is also the effect on one of the key objectives of the demonetisation process namely, terrorism. The idea was to make fake notes flowing in from Pakistan, mostly in 500 and 1000 rupee denominations, useless. In doing so, black money, a significant source of terrorist funding, would dry up.

Behind the overwhelming debates, discussions and criticism of the demonetisation process that we have been seeing in the past one month or so, there have been some silent positive social effects too.  For all other detailed processes and policies on the eco-political impacts, do keep in touch with our posts on our website www.nrilegalservices.com

Demonetisation effects on GST

demonetisation effects on GST

GST Caught Between Political Tussles – Fallout of Demonetisation and the wave thereafter!

Would Prime Minister Modi have thought that his ‘surgical strike’ on black money have an impact on the other proposed wonder drug of the economy – the GST? Well it looks like it is creating an impact on those lines. The tsunami that the demonetisation process has brought has led to feuds between the government and the opposition, besides generating a mixture of responses from the public and media. This animosity on the political front has caused the GST drive to suffer a setback.

And while on Taxes, the country’s finance minister has hinted now that the tax rates might be lowered –the assumption being that demonetisation would bring in higher tax revenues from unaccounted wealth. Considering the fact that digitisation would push a greater number of people to be in the tax net, it is hoped that in the future the taxation levels would end up being much higher. Consequently, tax rates could be made more reasonable for both direct as well as indirect taxes.

For now, people are hoping that the government might bring in a number of concessions for the taxpayer – be it individuals or the corporate sector. This would ease out the pain felt during demonetisation. The steps could vary from tax slab revision to reduction in corporate taxes to tax exemptions and rebates. All this is expected to target farmers, small traders, small and medium businesses and the youth. Over the past one month or so, the government has in any case been giving incentives to encourage digital payments. The currency situation is expected to improve by the third week of December.

Meanwhile, more than a month after demonetisation, these are some of the noticeable trends in the Indian economy:

  • Projected GDP growth for this fiscal year is 7% – this is as per the estimate given by the Asian Development Bank.
  • The figure for the next fiscal year is about 7.8% – as per ADB, the impact of demonetisation is temporary
  • Some of the incentives for cashless transactions were :
  1. 5% discount by Railways for online payment on facilities like e catering and booking retiring rooms
  2. 5 % discount by the Railways on season tickets that are purchased digitally January 1, 2017 onwards
  3. The banks had released about Rs. 4 trillion back into the system till the first week of December
  4. Banks had got about Rs. 12.4 trillion in deposits till mid December , since Demonetisation
  5. Amongst other aspects, the IMF survey on Financial Access pointed out that the number of ATMs per 100,000 adults is 19.71.
  • As of midnight December 15, the usage of the old 500 notes would stop completely – beyond this, the notes would only be deposited in the banks till December 30 and be exchanged at the RBI till March 31, 2017 (under special circumstances).
  • Till midnight December 15, the old 500 notes can be used in the following places:
  1. Government hospitals and pharmacies
  2. Consumer Cooperative stores
  3. Government Agricultural Research centres and related organisations
  4. Government milk booths
  5. Payments at all pharmacies
  6. Purchase of LPG cylinders
  7. Toll payments
  8. Fees, charges taxes, penalties towards government organisations
  9. Utility charges like electricity and water
  10. Court fees, Government school fees
  • The RBI updates its notifications and frequently asked question list (FAQs) for people to understand the basics of note deposit and exchange – it lays down certain specifications for NRIs also.
  • Although we try to bring you all the latest information, there are frequent changes and declarations made by the government. We would advice all our readers to keep checking the RBI official site (www.rbi.org.in) for authentication of all facts.

Demonetising _ The changing Taxation scenario in India

changing-taxation-scenario-in-india

In the past one month or so, there has been a wave of changes introduced due to the demonetisation process carried out by the Modi government. Besides a general ban on the old 500 and 1000 notes, in the recent days, there were many announcements made regarding gold and related schemes.

Somewhere in all this, there have been indications of measures being taken for streamlining the Taxation system in the country. Some of the proposed amendments in the Income Tax Act are:

  • Individuals with unaccounted cash or deposits of cancelled Rs 500 and Rs 1,000 notes will pay 50% tax
  • Out of the amount declared, a quarter would be locked up for four years in interest free deposits, leaving such declarant with only 25% of funds for immediate use.
  • The law also declares that there would be taxes imposed in the following manner:
    • Up to 60% (tax + penalty) – if it’s admitted and return is filed
    • 90% (tax + penalty) on cash seized in searches.
  • All individuals who declare their black money will have to mandatorily deposit 25% of the amount disclosed in anti-poverty scheme; that too, in schemes without interest and a four-year lock-in period.
  • Those who choose to declare their ill-gotten wealth stashed till now under the Pradhan Mantri Garibi Kalyan Yojana 2016 –
  • Will have to pay a tax at the rate of 30% of the undisclosed income.
  • And additional 10% penalty will be levied on the undisclosed income and surcharge called PMGK Cess at the rate of 33% of tax (33% of 30%).
  • All such declarants will have to deposit 25% of the undisclosed income in a scheme to be notified by the government in consultation with the Reserve Bank of India (RBI).
  • If some individual is caught holding on to undisclosed cash, the existing provisions of the Income Tax law would be amended to provide for a flat 60% tax plus a surcharge of 25% of tax (15%), which will amount a levy of 75%.

Or

  • The declarant will have to pay a tax of 60 per cent and an additional surcharge of 25 per cent of the tax (i.e. 15 per cent of such income), resulting in a total tax component of 75 per cent.
  • Besides, if the assessing officer decides he can charge a 10% penalty in addition to the 75% tax.
  • Service tax will not be levied on tickets booked through the IRCTC website from 23 November to 31 December – Rs. 20 would be levied as service tax on Sleeper and Rs. 40 on AC classes for booking tickets through IRCTC.
  • On November 23, the government also asked banks towaive the merchant discount rate (MDR) or transaction fee charged on debit card payments until 31 December, 2016..
  • In moves to strengthen and support the rural sector, the government also decided that it will provide Rs21,000 crore to district central cooperative banks (DCCBs) through NABARD to provide loans to farmers.
  • RBI has provided anadditional 60 days for repayment of housing, car, farm and other loans worth up to Rs. 1 crore.
  • The money from the scheme would be used for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality.

In the past few weeks, the government has been declaring various steps to flush out the economy of black money and improve the structure of the financial system. In the context of the steps being taken, there are frequent announcements made. While we try and bring the latest to you on a daily basis, sometimes there could be a variation in the data available. We suggest that you do verify all facts from the official RBI website too www.rbi.org.in , for all relevant information.