India Budget 2023: What financial relief is an NRI wishing for this year?

Here’s a detailed look at eight wishes NRIs hope to get granted in this upcoming budget.

Wish #1: Reduction on ‘Tax Deducted at Source’ (TDS) imposed on NRIs:

Currently all the income NRIs get in India are subject to highest rate of tax or rate specified in DTAA (Double Taxation Avoidance Agreements) with respective countries.

(NRIs often pay double tax i.e. in India and where they live. But with India having signed DTAA with several countries, NRIs living in these countries don’t have to pay double tax. If an NRI has paid taxes in India on any gains, he or she is not required to pay tax for the same in the country of their residence.)

For example, rent payments are subject to 30 per cent TDS. Also, when an NRI sells a property, the buyer is required for TDS to be deducted at 20 per cent on the sale amount, even if there is a loss incurred by the non-resident on the property. In this budget, NRIs are hoping that their hardship in claiming refunds due to unnecessary high deduction of TDS will be taken into consideration and be eased.

Wish #2: Clarity on how crypto, NFT-related investments are taxed:

Even though the Indian Budget, 2022 provided clarity in the potential-brimming crypto landscape in the country, there is still ambiguity on that front. By introducing a 30 per cent tax on the transfer of such assets, the regulatory decision ended the speculation about the impending ban on cryptocurrencies in India.

For tax purposes, cryptocurrencies are now defined as a ‘Virtual Digital Asset’ or VDA. VDA also includes non-fungible tokens (NFTs). It provides a digital representation of value which is exchanged. Does recognition of digital assets under income tax laws mean they have got legal status? It’s still unclear.

Here are some other doubts that are yet to be clarified when it comes to dealing in crypto, and related digital assets:

• There is no clarity on taxation of activities such as development and creation of crypto in India.

• If a person were to pay for a good or service using cryptocurrency in India, it’s unclear how such a payment will be considered – as a mode of payment or as sale of crypto to another person.

• Does the purchaser of goods or the recipient of services have to pay taxes separately on this transaction by considering it as a ‘transfer’ of the crypto asset?

• Should the seller of goods or the provider of services, who uses crypto as a payment option, have to deduct tax (TDS) while receiving the payment?

Wish #3: Income tax ‘slab rates’ needs to be revisited for NRIs:

The new slab system introduced in previous Budgets has not been too popular among taxpayers and not many have opted for the new slab systems. The basic exemption limit needs to be increased from a mere Rs250,000 (Dh11,242) per year at the moment, as it has not been changed for many years.

Keep in mind that income tax slabs for NRIs are based only on the income barring any gender, age or other specification. However, the income tax slabs and rates for NRIs are different from the resident Indians. The slabs for them are chiefly based on their taxable income and not on other things.

Wish #4: Increase in the deductions limit linked to NRI investments:

NRIs can avail deductions on payment of tuition fees for children, ULIPs (or Unit Linked Insurance Plans, which offers the benefit of investment and life cover), payment of premium for a life insurance policy and ELSS (or Equity-Linked Savings Scheme, funds that invest a major portion into equity).

As of the last Budget, repayments on home loan are also deductible, with a deduction of up to Rs200,000 (Dh9,910) for interest paid on a home loan for a house which is vacant and no limit on deduction for interest on rented property.

A maximum of Rs50,000 (Dh2,477) are tax deductible on premiums of health insurance, with over and above that up to a maximum of Rs5,000 (Dh247) for preventive health check-ups. NRIs hope these limits will be raised in this upcoming Budget.

There is no limit on the amount which can be claimed as a deduction under interest earned on an education loan. The deduction is available for a maximum of eight years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.

Wish #5: Increase in the limit on remittances from $1 million for NRIs:

Under the exchange law, as an NRI, you are allowed to remit up to $1 million (Dh3.67 million) from your non-resident account after you furnish the necessary documentary evidence. Remittance exceeding $1 million requires special permission from the Indian central bank, the Reserve Bank of India (RBI).

The remittance limit needs to be raised from $1 million (Dh3.67 million) to a reasonable amount since the limit has been unchanged for many years. Also, there has been growing need among NRIs in to remit more money abroad for purposes like children’s education, medical purpose, buying properties etc.

Wish #6: Rethinking tax on long-term equity investments for NRIs:

When it come NRIs making long-term equity investments, if the upcoming Budget will reconsider the tax incurred, this will encourage more and more NRIs to invest in Indian stock markets.

NRI investment in India in financial instruments such as mutual funds, stocks, gold, bonds, IPOs, etc. is subject to tax. For example, long-term tax incurred in equity funds is applicable at 10 per cent and 20 per cent for debt funds.

For long-term investments, the mutual funds are taxed at a rate of 10 per cent as per the long-term capital gains taxation rules. For equity schemes, short-term capital gains are taxed at a rate of 15 per cent and long-term capital gains at a rate of 10 per cent if the gains exceed Rs100,000 (Dh4,496).

Wish #7: Unconditionally increase the basic exemption limit for NRIs:

Like a resident taxpayer, a non-resident is also entitled to the basic exemption limit. However, there are often times several conditions attached to this. Let’s take the above-mentioned long-term equity investments, for instance, and observe the limitations that apply.

In case income other than long term gains of any nature and short term gains on shares or mutual funds is less than the amount of basic exemption, a resident is entitled to set off such short fall against the long term capital gains and short term capital gains on equity products.

The same facility to set off the short fall is not available to a non-resident. So he or she has to pay full tax on these capital gains even if he does not have any other income or such other income is below the taxable limits.

So the NRI may not have to pay any tax on dividends but he will have to pay tax on all short term gains earned on Indian equity at flat rate of 15 per cent. On such long term gains there’s a basic exemption of Rs100,000 (Dh4,496) on long term gains on Indian stocks, but beyond that 10 per cent will be paid.

Wish #8: Clarity on how banks report regarding NRI investments:

There should be some clarity on the reporting structure of banks and other authorities, especially on matters concerning the Income Tax Department regarding holdings and investments of NRIs.

For example, NRIs who only holds NRE fixed deposits are being sent notices without knowing the nature of the deposit. It creates unnecessary hassles for the NRIs.

These are some of the wishes NRIs have from the upcoming Indian Union Budget, 2023.