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seriously considering the damaging implications to the NRIs at large, relief is granted or the proposal is totally withdrawn as was happily witnessed after presentation of our Memorandum in 2002 when the seeds of said provisions were sown.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.
RAJESH H DHRUVA