The general budget presented by India’s finance minister on 1 February 2021 failed to enthuse NRIs in the UAE as none of their demands were met.
However, the Indian markets responded enthusiastically to the proposals aimed at vaccinating the economy from the after-effects of the covid-19 pandemic that stymied growth.
Stock market positivity
The markets viewed the budget as growth-oriented and balanced, which was reflected in the benchmark stock index Bombay Sensex rallying an unprecedented 5%, gaining 2,300 points to reach 48,600 points.
That has been the best performance by the stock market on a budget day since 1999.
The rally continued the second day, adding another 1,000 points, sustaining investor support as corporates were spared of any new taxes.
The minister also refrained from making any change in the personal income tax slabs, even though it was expected that more taxes would be imposed in a year when revenues were low and expenses high.
The finance minister was silent on the 120-day stay threshold limit to define NRI status.
Many NRIs were caught unawares and stuck in India during the long lockdowns following the covid-19 pandemic spread in 2020 and those stayed back beyond April 2020 have lost their NRI status, thus obliged to pay tax on their global income.
Benoy Sasi, international lawyer at DIFC Courts, commented: “It is expected that, like last year, the top tax authority Central Board of Direct Taxes (CBDT) will notify exemption for the number of days of stay in India for the purpose of defining the NRI status and tax obligation.
“If the notification does not come, NRIs who had to stay beyond April 2020 in India will end up losing their non-resident status and will be considered as resident Indian, thereby increasing their scope of taxable income in India.”
Double taxation off
The budget has proposed the removal of double taxation for NRIs on income accrued through foreign retirement benefit accounts.
Double taxation sees NRIs taxed on the same income twice, both in India and in the country of their residence.
Though they are not taxed on global income in India, NRIs are taxed on income earned or accrued within India; such as income on fixed deposits or savings accounts, income on housing property or salary earned in India.
When NRIs return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts and are forced to pay tax both in their host country and in home country.
This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions.
This hardship is now removed with the new budget proposal to remove double taxation.
In the case of NRIs in the UAE, double taxation does not apply as India and the UAE have signed Double Taxation Avoidance Agreement years ago.
For NRIs, from the tax assessment year 2021-22, the plan is to increase the threshold for tax audit to INR 100m (£1m, $1.4m, €1.1m) from INR 50m.
One person company
The budget has a good proposal for NRIs who want to become entrepreneurs after returning to their country.
NRIs will be allowed to set up one-person companies (OPCs) in India.
An OPC is formed with a single person as a member, unlike the traditional manner of having at least two members.
They also have lesser compliance requirements.
OPCs will be allowed to grow without any restrictions on paid-up capital and turnover. They will be allowed conversion into any other type of company at any time.
The move will benefit startups and innovators and will also help NRIs with entrepreneurial potential to enter the Indian market.