Indians slam tax on deposit income

Indian expatriates have slammed New Delhi's proposal to tax interest income on NRI deposits, saying it will hit the middle class of workers abroad and once again open the 'hawala' channel.

A salesman at a jewellery store said he and his friends are thinking of not sending money home through the banking channels. "It is already tough for those earning less than Dh3,000 a month," said Shehraj Kittur, pointing to the high cost of living in Dubai.

Ismail Hukkawala, president of the Dubai-based Indian Business and Professional Council, said the Council had pre-empted the budget proposal and had sent a letter to Jagdish Tytler, Indian Minister of State for Non-Resident Affairs.

"We have warned that it will have an adverse affect and there will be an outflow of funds from India. The common man does not have any other avenue for investments back home."

Hukkawala said it will be wiser to reduce the tax from 30 per cent to around five to 10 per cent. It is also difficult to file tax returns from here and get any the tax rebates, he said.

"These people are saving for their future requirements when they finally return to India. But one of the budget proposals will be advantageous to expatriates who invest in stocks and shares. The short term capital gains on shares and securities has been reduced to 10 per cent.

The tax will go into effect on September 1, said Hukkawala. "Granted that income is taxed worldwide; it is a logical step. But you have to look at the social aspects."

A representative of an Indian bank said there have already been some withdrawals.

On where people are planning to park their investments, he said, Singapore or offshore banks. "Some businessmen are bringing their money back here," he said, emphasising that there is no tax on interest income here.

"The Indian government is not worried about remittances from abroad as it has a huge forex reserve, which in excess of $120 billion."

Pervez Moosakutty, working with a logistics firm in the Dubai Airport Free Zone, said while the tax will hit the common man, he pointed out that many non-residents just park their money and do not invest it properly. "This will encourage people to invest it more productively."

Moosakutty feels that the tax should be for a higher bracket of deposits.

"Below that it will hit people who send money to support their families back home."

Ana S. D'Silva, a businesswoman, said the taxation is a good thing.

"Most of us live comfortable lives abroad and don't give back to the country. This will force us to get involved."

She said she has been a non-resident for most of her life, but has always felt that she must do something for her home country.

Preeti Ahuja, on the other hand, is livid.

"We have no voting rights. We do not get any services. Why should we be taxed?"

She said there are hardy any benfits for Indians working abroad. You get special privileges on train travel, but you have to pay in dollars for that, she said.

Mohammad Hussain Sulaiman, working as a salesman at a grocery, has not heard about the tax proposal.

"It's very bad news. We don't save much working here because salaries are not very high. We don't want any more losses."

Banking sources said that NRIs in the UK have also made a strong representation against the tax. Non-resident Indians in the UK and North America file taxes, unlike NRIs in the Gulf, and are worried over this "double taxation".

It is estimated that NRI deposits in Indian banks total around Dh113 billion.