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Representation for direct tax code
November, 10th 2009

It is for the first time in the last 50 years that the NRIs find themselves in a disadvantageous position by way of higher taxation as compared to the Resident Indians -KV Shamsudheen

The Direct Tax Code draft brought in such a short time is welcome. But the NRIs staying in UAE feel that this Direct Tax Code Punishes them by laying higher taxes than the Resident Indians. In the year 1992 the then Finance Minister Dr Manmohan Singh brought a scheme known as foreign remittance scheme 1992 which helped to bring app. 9mn US $ foreign currency to India; out of this App. US $ 6 mn came from Middle East Gulf countries alone.

In UAE majority of expatriates are from Kerala & other south Indian states and 95% of these expatriates are employed and staying mostly as bachelors, leaving their family & loved ones in India working here in odd whether conditions. The only motto of these people is to earn money & send it to their families in India. A large number of Middle East NRIs are holding Bank Fixed deposits in Indian Nationalised banks like SBI etc.

Since last 50 years (i.e. from inceptions of income Tax Act 1961) always NRIs were given special status and given lot of tax benefits because they are contributing foreign exchange reserves to the Indian government. But this is the first time in the last 50 years that the NRIs are placed in maximum disadvantageous position by way of higher taxation as compare to the Resident Indians. Therefore on behalf of these NRIs I am drawing the Govt's attention to the following clauses of the Direct Tax Code Provisions:

1 Section 4 of IT Act amended & Resident but ordinarily (R& OR) status has been proposed to be removed. By which NRI's foreign income for subsequent 2 years is will be taxable. Generally the NRIs also keep some portions of their savings abroad for future contingencies like education of children or to meet medical expenses etc. Now by this amendment NRIs are required to pay taxes on these foreign deposits from very second year of their returning to India.
Similarly, now professionals like visiting doctors, professors etc who are visiting foreign country for their professions are also hit by this provision.

2 Capital Gain: Majority of NRIs holding Indian company equity shares for long time, now this attracts 30%capital gain tax which is the biggest hardship to the NRIs investors. Therefore we urge that as per old system long term capital gain on sale of shares may be continoued.

3 It is more heartening to note that direct tax code proposes that there is no difference of tax between long term & short term capital gain & section 112 to 115 dealing specially NRIs capital gain tax on investment is going to be deleted in the tax code.

4 Interest income on investment: under new code it will be taxed @ 20% for NRIs where as resident Indians will pay tax only 10% up to income of Rs 10 lakhs, hence we pray that NRIs interest income may be placed at par with Resident income ie up to Rs 10 lakhs the tax rates may be brought down to 10% for NRIs also.

It is also said that other income like bank interest etc of NRIs charged @30% if this is true kindly look this following example: Shaji, a non-resident Indian staying in UAE assumes that he receives Rs 3 lakhs PA from SBI Cochin as interest on his fixed deposit. Now, he is paying tax only of Rs 14,000 as under:  1ST 1,60,0000 NIL Next 1,40,000 10% 14,000 Now in the new code he has to pay 30% tax on his Rs. 3 lakhs bank interest income and liable to pay tax of Rs. 90,000 as against his present tax liability of Rs 14,000 only. This issue needs to be looked into. Also, NRIs may be given confessional tax benefit like Residents.

5 Some experts also say that since word used in the code for NRIs Tax is as per Companies rate means No basic exemption of Rs 1.60 lakhs available & confessional rates of taxes like 20% for next 15 lakhs also not available, and 80 (C) deductions also not available which will affect the NRIs badly.6 Most of these NRIs are holding their one or two houses in India which will be used after their retirement. The new tax code proposes income of 6% retable value & where no retable value available 6% cost of construction or cost of acquisition.

Suppose Mr. Shaji constructed house in his native place at Kerala say at a cost of Rs 1 cr & say no retable value certificate available & no rent received; still as per the new code his income from house property is Rs 6 lakhs PA (6% of 1 CR) & he is liable to pay tax (on Rs 6 lakhs @30%) 1,80,000 PA. Further if house is self occupied no deduction will be available for local taxes paid and interest paid on housing loan, now what happens to lot of NRIs acquired houses in India on the support housing loan from Indian banks & some hoses are still under construction what will be their fate if they are retiring where shortly and planning to spent their retired life in India.

Are they liable for such exorbitant tax?7 Sec 54 amended at present, selling of one house & buying another residential house no capital gain tax will be payable subject to certain conditions, now it is proposed to amend this section & capital gain benefit is available for only one residential house that means if a person wants to change one house to another first he requires to sell old house than by new capital gain tax will be payable on sale of old house which again penalizes those NRIs who invested in 2 or 3 residential houses as per their future planning to distribute these houses among their children or brothers etc.


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