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Mon 6 Sep 2010 02:47 PM

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India's new direct taxes code may hurt non-residents

NRIs could face levy on global income if they stay in India for more than 60 days in a year.

India's new direct taxes code may hurt non-residents
GULF NRIs: The number of Indians in the Gulf is estimated to be about four million. (Getty Images - for illustrative purposes only)

Many non-resident Indians may fall under the country’s tax net, if the new Direct Taxes Code (DTC) bill proposal to impose a levy on their global income if they stay in India for more than 60 days in a year, is approved by Parliament.

According to a report by newswire Press Trust of India (PTI) , as per the existing Income Tax laws, a non-resident Indian (NRI) is liable to pay tax on global income if he is in India in that year for a period or periods amounting to 182 days.

However, the present dispensation for taxation of global income if an NRI resides in India for 365 days or more over a four-year period has been retained in the proposed DTC, PTI said.

The number of Indians in the Gulf is estimated to be about four million.

They will be given relief from payment of tax for two years on their global income in the transition period when they become resident from non-resident, a central board of direct taxes (CBDT) official told the Economic Times newspaper.

According to an agencies' reports, a senior Finance Ministry official said that the DTC hopes to plug loopholes with the proposed changes with the aim of preventing tax evasion.

According to PTI, an official said that the DTC has also removed the 'Resident Not Ordinarily Resident (RNOR)' category to simplify the tax laws.
Now, there will be only two categories, 'Resident' and 'Non-Resident', the official added.

Commenting on the proposal PwC Executive Director (Tax) Kuldeep Kumar told PTI, "With this change, a non-resident would be at greater risk of becoming an ordinary citizen and become liable to pay tax in India as the threshold limit has been reduced."
There would be liability on a resident belonging to a country where the tax rate is lower than India and there is a Double Taxation Avoidance Agreement (DTAA) between both the countries, the PTI report said.

The non-resident would be considered a resident if the threshold limit of stay has been exceeded for the purpose of imposing tax, it added.
According to agencies' reports, many experts believe that the DTC proposal could affect NRIs visiting India to meet their relatives or for business promotion. A large number of NRIs visit India every year for longer durations, especially during holidays.

An executive director at consulting firm KPMG told The Economic Times daily: “This could result in a situation wherein the overseas income of NRIs may be subject to tax under certain situations.”

The new code is expected to come into effect from April 1, 2012.

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Hermito Fernandes 9 years ago

There are families I know that go on vacation for a duration of 60 days at a time, so now we need to pay taxes to go home on vacation? I am in favour of the reduction but I would like to suggest a more reasonable time limit like perhaps 90 or a 100 days. While I am in favour of reducing the number of levels of Indian international labels, the government must focus on preventing too many grey areas, or we could have a glut of remedial actions which could cause further disenchantment.

Aiman 9 years ago

So, even the Indian government does not want Indians on their home turf for more than 60 days a year. What a shame?

persona non grata 9 years ago

In return for taxes full representation and voting rights must be given. The voting rights bill has been passed in the Rajya Sabha and by the time it reaches the lower house and set for debate, the list of exceptions will and is expected to rise. As the eminent journalist P Sainath notes about Indian law making and out of context with the issue at hand... "The good guys create a demand for legislation. The government agrees. Next, the well-intentioned come up with a draft the government then dilutes. After which the Planning Commission declares the effort to still be unworkable. So it's thinned down again. Then the Finance Ministry says: “where's the money?” And it's watered down to an irrelevance. What remains is something that enshrines the right of the Indian people to cross the street. It happens with each sector. The sequence is the same."

dhruve 9 years ago

Before you write, think other side of the coin. Are you aware A number of Indian industrialists including Vedanta’s Anil Agarwal and Essar’s Ravi Ruia have acquired non-resident status over the years & getting escape to pay actual income tax. I also visit india after 1.5 year to see my family but it don't give any freedom to always think on a negative side.

Shreekant 9 years ago

This step will be counter productive and will force NRI to find loopholes. The lower income NRI will be badly hit by this as they cant afford to travel every year. So accumulated leave will end up going as tax. Govt should foucs on reducing corruption and better utilisation of taxes collected. Every year I come, the country is going backwards in terms of infrastructure and hygiene.

Natesan S Joy 9 years ago

It's imparative to figure out and tax the non residents who really taking advantage of tax relaxation for NRIs. Better a solution must be figured out for finding such NRIs (black coins) who delibarately keep their NRI status exclussively for tax relaxation, with a very huge turn over and financial strength and can be imposed such kind of taxation. It seems to be unbarably disappointing for those who leave their loved ones back in India and going abroad to make their family life (in such a way suporting the country by earning foreign exchange) very desparately as they could not find an employement within the (state) country. Indian govt is not giving any consideration corresponding to the revenue NRIs earning for the country. Rather they suport Air lines to squeeze us with the rates and services. They never deploy ample staffing for the Embassies to suport and assist the SO CALLED NRIs (expecially in the Middle east)

Joy 9 years ago

Because some individuals misuse the NRI status,the government should not punish the whole global NRI community who were given the promise to be tax-free stay for 182 days a year and were lured to put all their investment in India under many promises.Now out of the blue all these promises will be cast to the winds,and NRIs face global punishment.It looks so.PLEASE COME TO THE MOTHERLAND,PUT ALL YOUR MONEY HERE,GET OUT IN 59 DAYS,OR YOU WILL BE PUNISHED

SURESH 9 years ago

The salaried persons shall be given an exception to stay more days, as his leave cycle permits. If he is given leave for 5 -6 months based on his employment nature (ships / offshore), this will be an adverse effect on his earnings from a forgien country through employment. More than that , he will be paying indirect taxes for all his spendings in india and his income thru interest in banks or other deposits.

vijay 9 years ago

The proposed DTC is unfair to Indian Seafarers on following account: - The figure of 60 days (to become a resident Indian) is illogical. In normal mathematical and statistical rules , 49.9% is the deciding factor...Rough example ,the owner of a Company is the entity which has 51 % share...etc. - Many developing countries , who have a sizeable seafaring community provide complete Tax exemption to their seafarers. Example , Philipines. - It is inhuman to assume that a seafarer can sail for 10 months a year. The separation from near and dear will become intolerable .The job at sea being one of the most riskiest jobs in world, it really drains out the energy of individual ,even with present ,6months ON /Off contractual terms . - All seafarers are bringing their full money into their Motherland and spending all their money in India. -This move of Taxing Indian seafarers will make us weak financially when comparing with the Seafarers around the world. - Is there a better forum to discuss the above points ?if yes kindly post the forum details. I request Hon Minister , to review the DTC , in consultation with Shipping Ministry.At the very least kindly keep the days in India as 182 days in any financial year- As it was before.

Nimesh 9 years ago

Whilst it is understandable that the Bill is aimed at stopping exclusively rich individuals of Indian origin who have businesses started from India from coming into the country for almost half the year and profiting. It has to weighed against the need for the vast majority of NRI whose families left India hoping to make money, but hold menial jobs abroad...their Flights back to India are almost prohibitively expensive, and so staying for large periods of time with family still in India (who may oftentimes be ill) should not be deemed a tax worthy offence.