As India needs more than $75 billon (about Dh275 billion) to finance its staggering current account deficit, the Finance Minister P. Chidambaram, said in his budget speech that there are only three ways to do it — Foreign Direct Investment (FDI), Foreign Institutional Investor (FII) or External Commercial Borrowings (ECB). But analysts point out that since India was in trouble for borrowing through the ECB route in the past, the country is left with only two options — FDI and FII. Clearly, the government will focus lot more on bringing in foreign as well as Non-Resident Indian (NRI) investments into the country.
So how does the budget shape up for the NRI? “The union budget offers gains for the NRIs by increasing the deduction limit on interest under real estate and rupee-based infra investments,” Adhil Shetty, CEO, BankBazaar.com, a finance portal. However, he says, it takes back the relief by imposing 25 per cent tax on royalties for technical services from India.
Deduction on home loan interest
If you have a noteworthy income from India and you still don’t own a house, then this is the right time to do so. According to the proposal, if you are purchasing a home for the first time and taking a loan from any bank or other housing finance corporation of not more than Rs2.5 million (about Dh168,000), then you will be permitted additional deductions on interest up to Rs100,000. In case you are not able to fully avail the benefit in 2013-14, you can claim the rest of the amount in 2014-15. This deduction will be given as an additional rebate along with an existing deduction of Rs150,000.
However, financial advisors caution against investing in big property that becomes difficult to manage later on. “An NRI investor who is in the Gulf typically goes and buys a house that is far bigger than the number of people in his family. But what’s important is that they need to manage their finances there. They need to build a house that is ample enough for them,” says Ganesh Shanbhag, Promoter, SMS Financial Service.
Reduced tax on infra bonds
The finance minister has reduced the tax on interest to 5 per cent from 20 per cent in the last budget. This time, the government has made more significant changes by offering same benefits to investments made from a designated bank account in long-term infrastructure bonds denominated by the rupee. Analysts feel this will help attract more NRI investments in long-term infrastructure bonds.
Tax Residence Certificate
In the last budget, the finance minister made it mandatory for all NRIs to provide a Tax Residency Certificate (TRC) from country of residence before claiming any tax treaty benefit. Chidambaram has introduced an additional clause to make the process even more complex. While a TRC presented separately is not a sufficient condition for claiming the benefit, no other conditions are mentioned in the Finance Bill regarding the procedure to claim treaty benefit. “If such unclear process is passed, then it will raise the power of the tax department to examine these benefits, which in turn makes non-residents follow more compliance procedures. Therefore, it can make NRIs feel more burden from a tax-related angle,” says Shetty.
Duty-free gold import
While coming to India, you can bring more gold at a cheaprate while saving 6 per cent import duty up to a prescribed limit. The finance minister announced that male passengers can carry gold worth Rs50,000, and female passengers Rs100,000 compared to the earlier limit of Rs10,000 and Rs20,000 respectively. Jewellers in the Gulf have already started to see some impact of this clause on their sales.
Increased tax liability
An NRI has to pay a tax of 25 per cent if he is receiving royalties for technical services from India. However, if there is a Double Tax Avoidance Agreement with India, then the tax will be imposed as per the mentioned rate in the agreement.
Impact on businesses
From the business point of view, this is a good budget as government wants to attract more foreign investments. “If you look at it from a non-resident’s perspective, the sectors to be opened out under the FDI will be banking, insurance, retail and aviation. The government might pave the way for allowing private sector banks in India to be merged with industrial houses,” says Shanbhag. He gives the example of UAE-based Indian businessman M. A. Yusuf Ali of Emke Group who recently picked up a 4.9 per cent stake in Catholic Syrian Bank in Kerala. There was another person from Bahrain who bought 4.99 per cent in Dhanalaxmi bank.
For retail investors, financial advisors suggest that people who are in the Gulf should start looking at the Indian equity market and start allocating some portion of their resources every month. If they can create a corpus in India, it will help them beat inflation and grow their wealth over a period of time.
