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Dear Friends,
VISIBLE BAD NEWS :
1. It is all bad news as regards NRI's interest income from
Foreign Currency Non-Resident [FCNR] and Non-Resident External [NRE]
Deposits.
2.Hon'ble Finance Minister Shri P. Chidambaram, while presenting the
Union Budget 2004-2005, has proposed an amendment discontinuing
income-tax exemption on the interest income of Non-Resident Indians
derived from Non-Resident External [NRE] Accounts and Foreign Currency
Non-Resident [FCNR] Accounts with effect from 1st September, 2004.
.02 It is also proposed to discontinue exemption relating to continued
Foreign Currency Non-Resident [FCNR] and Resident Foreign Currency [RFC]
Accounts, and denial is proposed for tax exemption hitherto
available to a person defined as "Non-Resident" or
"Resident but Not Ordinary Resident [RbutNOR] also with effect
from 1st September, 2004.
NOW,
THE INVISIBLE BAD NEWS -
1.01 With the discontinuation of exemption from interest earned
fromNon-Resident External [NRE] and Foreign Currency Non-Resident [FCNR]
Deposits by by Non-Resident Indians [NRIs], being liable to tax in
India in all cases where income exceeds threshold limit of Rs 50,000/-
will be required to -
i) apply for Permanent Account Number [PAN], and
ii) file a tax return every year
3. In all probability, Non-Resident Indians [NRIs] may not have an
objection in paying marginal tax and thereby contribute to the
economic development of the Nation, but the hardship of preparing
accounts, filing tax return, await assessment etc is an unpleasant
surprise for the Non-Resident Indians [NRIs] and this may see
" FLIGHT OF CAPITAL."
4.
A Memorandum should be presented to the Hon'ble Finance Minister
suggesting adoptation of a middle path whereby the marginal tax may be
collected and at the same time Non-Resident Indians [NRIs] may not be
required to file a tax return.
.02 This can be done by following the Distribution Tax method adopted
in Dividend declared on Debt Funds by Indian Mutual Funds.
.03 Alternatively, following the pattern of Chapter XII-A,
"Special provisions relating to certain income of
Non-Residents" as in Section 115G, non-filing of return of income
should be provided for.
Hope for the best and also hope that after seriously considering the
damaging implications to the NRIs at large, relief is granted or the
proposal is totally withdrawn as was happily witnessed after
presentation of our Memorandum in 2002 when the seeds of said
provisions were sown. [ copy of said presentation can be viewed at http://www.femaonline.com/memo.htm
OTHER
IMPORTANT CHANGES :
1. Long Term Capital Gains arising from shares, debentures and
other securities sold through a recognized Stock Exchange will be
exempt from tax.
2. Short Term Capital Gains arising from sshares, debentures and
other securities sold through recognized Stock Exchange in India
will be subject to tax @ 10% instead of present rate of 30%.
3. Turnover
tax at 0.15% on securities transactions .
4. FII registration is simplified to encourage FII investment in
Indian Stock Markets.
5. Foreign direct investment limits in Telecom raised from 49% to 74%;
in Civil Aviation from 40% to 49%, and in Insurance sector from 26% to
49%.
6.
Individuals having taxable income of Rs.100,000 or less will get total
tax exemption.
7.
Small savings and Provident Fund interest rate pegged at 8.00%. Senior
Citizens to get advantage of interest of 9.00% p.a.
8. Gifts
received in excess of Rs. 25,000 from any person other than a person
defined as a "Relative" will be added to the taxable income
of the recipient.
Best wishes.
RAJESH H DHRUVA
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