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by Moiz Mannan
Non-resident Indians (NRIs) have every reason to have high expectations of their home country’s Union Budget 2013 to be presented before the parliament in the next few days.
India’s diaspora have made it the top foreign remittance receiving country in the world for several years running now. In the current economic scenario, the country is eagerly looking towards its overseas citizens to invest in businesses, industry and, most importantly, in infrastructure development and welfare initiatives. Despite the global downturn, bank deposits in the non-resident accounts have only grown.
And, in a happy co-incidence, the country’s President as well as the Prime Minister, both of whom pledged support to NRIs at a global diaspora conclave just over a month back, have both held the country’s Finance portfolio at different periods in time.
If one were to take a second look at what NRIs expect from the Union Budget, it becomes clear that there are two sets of expectations. One, those NRIs belonging to the business or professional class abroad – mainly in the West, and two, the low and middle income workers toiling in places such as West and East Asia.
It so happens that while the first set looks at special provisions and incentives to make more money, the second one looks at the budget more or less like the resident ‘aam aadmi’ whose main objective is to save money.
The expectations are further heightened by the pro-active and liberalised outlook adopted by the government and the Reserve Bank of India (RBI) when it came to NRIs and other foreign investors. Having said that, one must agree that a bulk of the expectations would relate to taxation in some form or the other. We know that the new Direct Tax Code (DTC) is not likely to come into force this fiscal, but NRIs in a particular income bracket would be concerned about a hike. Some experts believe that to increase receipts the finance minister may come up with another tax slab with high rate of tax of 35 per cent to 40 percent for income of Rs two million and above. This should bring down the net take home income for many white-collar NRIs.
However, those falling in the middle income slabs between `500,000 to `1m are may be given opportunities to save income tax as the government needs funds to propel the investments in infrastructure and there will be serious attempt from the government to please the middle class by increasing tax concessions. Further, it is possible that zero tax slab may be extended to the `500,000 threshold.
Puneet Gupta, Senior tax professional, Ernst & Young, writes in a column that the requirement to deduct TDS, for resident Indians, comes into play only above a certain pre-specified limit for a financial year. For example, TDS on rental income is applicable only when the total rental income paid to the resident Indian exceeds `1,80,000 per financial year. Similarly, TDS on professional income is applicable only when the total professional income exceeds `30,000. However, there is no such provision for NRIs. Any amount, chargeable to tax, paid to an NRI is subject to TDS irrespective of the amount of income. The Budget may introduce certain thresholds for TDS for NRIs as well. At present, the general rate at which TDS is deducted on payments made to NRIs is 30 percent.
Speaking of incentives to invest, the government may float some scheme for the NRIs to attract dollar-denominated investments to support the dwindling rupee and fund the government’s deficits. Participants in bond markets are also expecting some positive measures to facilitate investments from NRIs in long term government bonds and corporate bonds. A deduction of `20,000 was available till Financial Year 2011-12 from investment in infrastructure bonds. This may be reintroduced in this Budget, along with introducing exemption from tax on interest income from Infrastructure bonds.
To save capital gain, an individual can invest in capital gain bonds according to section 54EC of the Income Tax Act. The upper investment limit under this section is `5m. In the past, there was no such cap and all transactions related to property were done with white money. With the government making changes to this law few years ago and placing a limit, people have been resorting to unwanted ways to save tax. This cap, hence, is expected to be removed in the forthcoming budget.Basically, with regard to taxation, the underlying requirement is simplification, harmonisation and rationalisation. Overseas Indians view the Indian tax systems as being ‘complex’ and are looking at the FM for simplicity in laws and procedures. To further reward remittances, the government may come out with some incentives for forex earners - exporters and NRIs remitting money to India. Also the government may make it mandatory to remit money home and not allow holding dollars overseas for extended periods of time.
One other important aspect that touches middle income expats is the issue of housing. There may be some incentives in the form of increased tax concessions on home loans. With rising home prices government may decide to increase the extant deduction limit of `100,000 under section 80C to `150,000 per person per year. Also, a speedy introduction of the Real Estate Bill would please NRIs as it would regulate this lucrative but dicey market that is full of thugs and tricksters.