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Personal tax reforms from NRIs' perspective
February, 20th 2010

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. Guptas 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 Honble Finance Minister take a cue and woo Indias 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 NRIs 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 diasporas 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 NRIs 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 NRIs 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 NRIs 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 NRIs 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 NRIs 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.

Wealth tax is levied on the value of specified assets in excess of Rs 15, 00,000. Specified assets include house property. However, the Wealth Tax Act provides an exemption in respect of one house property. In case of more than one property, the NRI would have to pay wealth tax @ 1% on the value in excess of Rs 15, 00,000.

Income-tax implications on house property income in India depend on whether the property is kept vacant or let out. In case an NRI has only one property in India and it is vacant, a rental value cannot be attributed to the same. However, if he owns two properties and both are vacant, he has to pay income tax on one of the properties as if the same was rented. Clarity on this aspect is required.

Currently, the deductions for medical treatment of a handicapped dependent u/s 88DD or for terminal ailments u/s 80DDB or u/s 80U for persons with disability are applicable to residents only.

The returns filed by NRIs should be mandatorily cleared within a period of 30-45 days else the same should be deemed to have been accepted.

In case of any disputes and discrepancies in the return the same must be dealt with in a facilitative as opposed to an adversarial approach due to the lack of clarity and information and the same should be time bound.

For returning Indians, it is important to provide a social security safety net by negotiating social security agreements with various countries where several thousand NRIs have contributed to the social security systems.

The above echoes the view of NRIs such as Mr. Gupta. Therefore, a holistic, one law, one window approach would be desirable so that the Indian diaspora gets the message of the Indian Government to woo them seriously. Perhaps the Government would wake up to their needs!

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