Fate of returning Indians hanging in the balance

The countdown to the presentation of the India Finance Bill (popularly known as the budget) 2003-04 has begun. On February 28, India's finance minister Jaswant Singh will set down in black and white proposals to bolster India's economy.

Will the unveiling of the Indian budget generate as much interest among the Non-Resident Indians (NRIs) based in the Gulf as in the decade 1984 to 1994? I do not think the NRIs can expect any further concessions except for minor revisions in customs duties on foreign imports as personal baggage.

What should be keenly watched by the NRIs, are any changes in the concessions granted to the 'Returning Indians'. There have been proposals in the past budgets to revoke the concessions granted to returning Indians between 1991 and 1993.

This is very important for those Indians who return to their motherland voluntarily or involuntarily because those changes have a direct impact on their tax status as well as the rights granted in respect to repatriation of funds and assets accumulated during their stay abroad.

It was in the early 1990s that a fair number of NRIs decided to return to India because of the special status and tax reliefs granted. For example, an Indian who had stayed out of India for at least two years on return to India was classified as "not ordinarily resident".

The latter meant that, as an NOR the returning Indian does not have to pay tax on income earned from foreign sources as long as that income was not repatriated to India and this applied to them for a period of nine years.

In the wake of the latter, the Reserve Bank of India (RBI) also came out with good news for returning Indians. Earlier returning Indians had to repatriate all monies earned and saved abroad within a period of six months from the date of their return. The concessions or incentives given by the RBI included:

a) Permission to keep abroad pension and retirement benefits which they received after returning to India.

b) Permission to keep their foreign currency assets out of India and the ability to retain and operate their foreign currency accounts with banks abroad.

These and many more (experience tells me) helped many returning Indians to resettle at a pace of their choice without having to worry about the taxman breathing down their necks. This was especially relevant in the case of returning Indians from Gulf countries where they had been enjoying a totally tax free status.

The move to revoke the above concessions was first proposed in the India Finance Bill of 1996 presented by the then finance minister Yash-want Sinha. However, fortunately for the thousands of Indians who had returned in that period by the time the bill became an act, the proposal was dropped.

The latter was not due to any feeling of generosity on the part of Yashwant Sinha but because at that time though India's foreign exchange reserves were growing they were not as healthy as they are at present.

The present finance minister is in a much more comfortable position than his predecessor in 1996. With foreign exchange reserves crossing the $70 billion mark, Jaswant Singh can afford to revoke concessions granted to returning Indians a decade ago.

In fact this was one of the recommendations of the Kelkar commission of tax reforms in India.

For those on the verge of returning to India it would be advisable to wait till the budget is presented, debated and becomes an Act - that is for those who intend to return voluntarily.

For those who have to return due to circumstances beyond their control it would be advisable (if they have sizeable assets) to urgently consult qualified financial advisers who are specialists in Indian economic affairs.

With the economies in a tizzy all over the world, it would be prudent to wait and watch and select the best options even in the event of the revocation of concessions granted to returning Indians between 1991-93 - the days of Dr. Manmohan Singh who as the finance minister in the Narasimha Rao cabinet is credited with laying the foundation of a sound economic structure - the benefits of which are apparent today.