In a major jolt to the Non Resident Indian (NRI) community, the central government has quietly imposed a 12.36 per cent service tax on remittance to India, a move that would take away about Rs 780 crore of NRK deposits that makes it way into Kerala, going by 2013 figures. The NRIs including those from Kerala are set to fork out Rs 3,694 crore.

The new tax, which came into effect through a new circular from the Central Board of Excise and Customs (CBEC) would affect Kerala the most as remittances from NRKs account for nearly 35 per cent of the net domestic product of the state.

For the year ended March 31, 2014, foreign remittances into Kerala stood at Rs 90,000 crore. The average remittance cost charged by Money Transfer Service Operators (MTSO) is 7 per cent, according to a study by consultancy firm KPMG.

So what is subject to the new 12.36 percent service tax would be on Rs 6,300 crore (7 per cent of Rs 90,000 crore), which would add up to Rs 779 crore. In the coming years when Goods and Services Tax (GST) would be introduced, the rate of service tax would go up to 16-20 per cent, affecting the NRI earnings further.

K C Joseph, minister for NORKA (Non Resident Keralites Affairs) said he was aware about the development and promised steps to address the situation. “We will take up this issue with the Centre,” he told ‘Express’. The new tax is unfair to Keralites, a large number of whom have taken up menial jobs in West Asia to support their families back home, said experts.