“We have been expecting an NRI-friendly budget that included income tax exemption for the investments made through NRI funds in India for a specific period. There have been demands to extend the period for which a person can stay in India to qualify as an NRI from the present six months to nine months,” said Krishnan Ramachandran, chief executive of Dubai-based Barjeel Geojit Securities.
All that the interim budget offered were some relaxation in tax rates and ceilings. The government presented the interim budget instead of a full budget as a new government will be installed after the general elections in three months.
NRIs who earn income in India are required to file tax returns every year and pay the applicable taxes or claim refunds as the case may be. Major sources of income in India for NRIs are rental income, interest from deposits and investments in stocks and securities as well as capital gains.
In the interim budget, personal income tax limit was raised to INR 500,000 ($6,963, £5,329, €6,080) per year from INR250,000, which means individuals earning up to INR500,000 would get a full tax rebate. This will provide tax saving of up to INR12,500 for all taxpayers in this bracket.
Individuals, including NRIs, who are eligible for this concession have to file income tax returns. The relief will come as a rebate, after the returns have been filed. These include raising standard deduction from INR40,000 to INR50,000. Those who earn more can effectively avail rebate up to an income of INR650,000.
No specific benefit to NRIs
“There is no specific benefit offered to NRIs per se, except making the interest earned on NRE (non-resident external) accounts tax-free. Thus, all benefits and tax reliefs accorded to resident Indians are applicable to NRIs also. In fact, NRIs are discriminated against in spite of being citizens of the country. For instance, NRIs are not allowed to buy agricultural land or plantations,” Krishnan said.
Tax on interest income
A major concern has been the high incidence of tax on interest income. However, instead of reducing the tax on interest income, the ceiling has been raised.
Depositors/investors are paid interest after deducting the applicable tax at source. They can then claim refund from the tax authorities on filing the tax returns.
The tax deducted at source threshold on interest earned on bank/post office deposits is raised from INR10,000 to INR40,000.
Interest income from savings and investments above INR10,000 is taxed at 15%. The limit of INR10,000 has now been increased to INR40,000, which is a huge benefit.
Similarly, instead of reducing tax on interest income, the TDS threshold for deduction of tax on rent is hiked from NRI180,000 to INR240,000.
NRIs invest in property more for rental income than profit from resale. The rental income is usually clubbed with other incomes such as interest from investments and capital gains.
Though NRIs were expecting a decision on the issuance of NRI bonds to shore up foreign reserves and stabilise the currency, the budget proposals kept silent on the issue.
NRIs rue that the investment limit in companies is kept unchanged. An individual NRI is allowed to hold only a 5% stake in a single company and the combined stake of all NRIs in a single company is limited to 10%. These limits remain unchanged, though there have been demand to increase the ceiling to facilitate more fund flows.