For the NRIs, the most promising proposal was the decision to issue the Aadhaar card (a unique national ID card) on arrival in India, without the mandatory waiting period of 180 days to be eligible for it.
The first budget of the second term of prime minister Modi’s government has eased the criteria of obtaining the card for NRIs who hold an Indian passport.
Aadhaar is the world’s largest biometric ID system based on demographic data. It was a long pending demand from the NRIs to issue for them the national ID after the government made it mandatory to link the card with all bank and property transactions.
However, a provision that the card be issued only to Indians who stayed in the country continuously for 180 days made the NRIs ineligible, though many of them managed to obtain it by other means.
“Now that the government has decided to issue Aadhaar card to NRIs on arrival in India, the authorities should facilitate issuance of the cards from the diplomatic missions in the respective countries,” said KV Shamsudheen, director at Barjeel Geojit Financial Services, and chairman of Pravasi Bandhu Trust, an organisation that took the lead in petitioning the Indian authorities to issue the card to NRIs.
The budget proposed the merger of investments made thorough NRI portfolio route with the foreign portfolio investment (FPI). This will establish a single regime for foreign investors and regulate investments and funds brought in by the NRIs and Persons of Indian Origin (PIOs).
Currently, NRIs invest in Indian stock markets through portfolio investment schemes (PIS), which are governed by the Reserve Bank of India. The scheme comes with several restrictions and NRIs seldom use the route.
“The merger of NRI and FPI route and the simplification of documentation processes will bring in much larger pools of NRI capital through pooled and professionally managed structures,” said Sajith Kumar KP, chief executive officer and director of IBMC International, fund advisory firm based in Dubai.
What will be worrysome for the NRIs is that the budget has made taxable in India gifts by Indian residents in the form of property or money.
However, the exemption on these gifts from income tax would apply, depending on the treaties between India and respective countries they stay.
At present, gifts by a resident to another resident are taxable, subject to exemptions. A proposal is also made to plug a loophole in case of any gift by a resident to a person outside the country will be subject to taxes in India.
It is proposed to amend the Black Money Act, by which registration to an institution could be cancelled on NRIs fleeing abroad to avoid prosecution. At present, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, covers only resident Indians.
“This move will help law enforcement agencies to pursue undisclosed foreign assets and funds parked abroad,” said Benoy Sasi, international lawyer at DIFC.
Charitable trusts and non-profit organisations are targeted with tax officials being empowered to cancel registrations if the trusts fail to comply with the criteria or deviate from certain objectives for which they are constituted.
The definition of assessees is expanded to include NRIs in view of the fact that many NRIs and entities were featured in the Panama Papers that contained the list of individuals who wilfully concealed their foreign accounts to evade tax in India.
“This provision will empower the officials to to confiscate assets and will impact individuals who may have left the country in the hope of avoiding the law,” said Krishnan NV, director, The Institute of Chartered Accountants of India, Abu Dhabi Chapter.