Budget proposals for Non-Residents
Ratan:
Here are some new initiatives in the new budget proposals that are deemed beneficial for NRIs,in case you didn't have chance to read it yet.I think the new capital gains tax (A reduction to 10%) is one of the best anywhere in the world,bar none.
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Source:Dhan.com
By Ninad Karpe
NRIs look forward to the Budget proposals with great expectations. Year after year, Finance Ministers dole out some incentive for NRIs to promote investment in India or grant some tax concession. This year's Budget has a sprinkling of benefits for NRIs.
NRI Investment
The Finance Minister has proposed the following initiatives for encouraging NRI investment:
Automatic approval for investment upto 100% by NRIs/ OCBs in all sectors, except the following sectors:
With notified FDI equity caps
With compulsory licensing
Reserved for public sector
Reserved for small scale sector
Screen based trading terminals will be set up abroad to allow NRIs to trade in the Indian capital markets.
NRI investment in mutual funds will be simplified by a simple requirement of a post-facto reporting to RBI.
Opening up all the sectors for NRI investment is an extremely good step. Also, if trading terminals are set up in major cities outside India with large NRI population, it would ensure transparency for stock trading by NRIs.
Cost of assets brought to India
A non-resident may come to India with an asset acquired outside India. Where such an asset is used for business or profession in India, the cost will be determined as follows. The actual cost for which the asset was acquired outside India will be reduced by the amount of depreciation which would have been allowed under the Indian laws assuming that the asset was used in India. Thus, depreciation will be allowed on this lower amount.
Leave Income
For a non-resident working in India, salary paid for services rendered in India is regarded as income earned in India. Now, salary payable for rest period or leave period, which is preceded or succeeded by service in India, will also be regarded as salary earned in India.
Capital Gains Tax
The Income Tax laws have a legacy of granting a concessional tax regime on long term capital tax to NRIs for assets which have been sourced in foreign currency. To insulate such gains from the falling Rupee, NRIs have been given the facility of calculating capital gains in foreign currency and then re-converting it in Rupees. Thus, NRIs have been protected from foreign currency fluctuations. The tax rate is 10 per cent.
Residents have been given the cost indexation method for calculating long term capital gains. This is not allowed to non-residents. After indexation, the rate of tax was 20 per cent. Thus, there were different benefits available to residents and non-residents and the ultimate tax rate of 10 and 10 per cent was not strictly comparable. However, there was a general feeling that non-residents pay a lower capital gains tax rate. The Budget has addressed this and reduced the tax rate to 10 per cent for residents. Thus, a resident would get the cost inflation index and the limit on tax is capped at 10 per cent. If the tax on long term capital gains exceeds 10 per cent, the excess will be ignored.
Residents NRIs
Cost inflation index Yes No
Forex fluctuation No Yes
Flat rate of 10 % No Yes
Max rate 10% 10%
Thus, NRIs are now in a more disadvantageous position as compared to residents. This is quite unique, as the tax laws have never discriminated unfavourably with NRIs, as they have brought foreign currency into India with these assets.
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