The 2012 budget has been a windfall of sorts for the global NRI community. While the deferment of the Direct Taxes Code brings some relief (see box), significant regulatory incentives granted to NRIs will now allow them to directly invest in corporate India's debt market.
Until now NRIs were permitted to invest only in Indian companies having specific permission from the Reserve Bank of India (RBI). Companies often chose not to secure this permission, restricting access to NRIs. Now, the Indian government will allow qualified foreign investors (QFIs), who can be individuals, associations or groups, access to Indian companies.
"This proposal offers opportunities to individual NRI investors keen to participate in India's growth story," says Mumbai-based investment consultant Ashish Agarwal of Kenflo Services.
Another gain for NRI investors is in the real estate sector. With the finance minister leaving tax exemption on housing loan interest untouched, developers increasingly depend on NRIs unaffected by local tax concessions.
"There is a robust return of the NRI home buyer on the Indian real estate scene — both for residential and commercial properties," says Ramesh Nair, Managing Director, Jones Lang LaSalle India.
NRIs also stood to gain when just ahead of the budget the RBI deregulated interest rates paid by banks on non-resident (external) rupee (NRE) deposits. Most banks now offer a higher interest rate on NRE accounts. "This effectively means NRIs can now earn more on their deposits, given the rising interest rates," says Thane-based investment advisor Shobha Pai. The RBI also liberalised certain provisions of the Foreign Exchange Management Act (Fema), 1999, allowing NRIs to open an NRE account jointly with a relative.
"The resident Indian relative can now transact on behalf of the NRI with the help of a power of attorney," says Pai. "The new relaxation reduces problems that a legal heir or nominee faces in getting the corpus in case of death of the NRI account holder."
With the realignment of income tax slabs in this year's budget, even NRIs with incomes in India stand to benefit. "The minimum taxable income has been raised to Rs200,000 (about Dh14,369) from Rs180,000. In the highest bracket, an individual earning more than Rs1 million stands to gain Rs22,000," says Pai.
However, the introduction of mandatory foreign asset reporting and allowing the income tax department to open previous returns of up to 16 years to check for tax evasion could have far-reaching implications.
"While this would help bring tax evaders to book, it could create unnecessary reporting requirements, harassing NRIs returning to India after staying abroad for years," says Agarwal.
Taxing times ahead
One of the significant developments in this year's budget from the NRI's point of view was the deferment of the implementation of Direct Taxes Code (DTC). This new tax regime, that was tipped to come into effect from April 1, 2012, has some provisions that are detrimental for NRIs and the delay in its execution now gives the government time to redress the grievances of NRIs.
The key factor that impacts NRIs is the definition of resident status. "Under the existing provisions, an individual becomes resident of India if his/her stay in India is 182 days or more during a tax year (182 days condition) or 60 days during the tax year and 365 days in the past four tax years (60 days condition). An individual who does not fulfil the above conditions qualifies to become a non-resident," says Mumbai-based chartered accountant, Anantram Rao. He adds that under the provisions of the new tax regime, NRIs would be increasingly due for taxation on not only their income in India, but also their global incomes in the preceding years.
Currently, individuals of Indian nationality or origin who are settled abroad, have been given a significant advantage in determining their residency in India (as the 60 days condition is not applicable in their case so that they can visit India to take care of their investments in India and family). This beneficial provision is missing in the proposed DTC.
Another area of concern under DTC is wealth tax. Under the current provisions, if an individual is not an Indian citizen, there is no wealth tax payable on the assets situated outside India. However, under DTC, they will be taxed on their wealth situated anywhere in the world, irrespective of whether such individuals are citizens of India or not. Though the taxable wealth exemption limit is proposed to be enhanced from Rs3 million (about Dh215,425) to Rs10 million under DTC, even the definition of taxable wealth is proposed to be expanded. "If DTC comes into effect with the currently proposed provisions, NRIs will need to plan their travel calendars to India in such a manner that they do not fall under the resident status," says Rao.
— A.R.
