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NRI Taxes

Kerala Forum: Non Resident Keralites: NRI Taxes

By Old Mb on Friday, July 20, 2007 - 05:09 am: Edit Post

This thread is to discuss the tax implication of NRI's. Please post information on this topic, your views on the Taxe issue, links to resources on the net about NRI Taxes and more.
All comments are welcome!
Alex
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Tom:
I don't understand the complexity of the tax procedure. Can anyone tell me how this NRI Tax is going to imposed. The Tax is to be imposed on the Income (Interest) on NRI Deposits, i believe. in that case what is the limit of the tax exemption, what is the taxable income (e.g. 50,000 etc.) ??? Is all the NRIs supposed to file tax returns.. even if they dont have any taxable income (interest) on their deposit. ??? if anyone knows the details.. pls explain..
Thanks
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Message:
BUDGET HIGHLIGHTS FOR NON RESIDENT INDIANS
(The Finance Bill (2), 2004-2005)

1. Income Tax Rates
No change in existing Income Tax Rate and Surcharge otherwise stated below.

An Additional Surcharge @ 2% (on aggregate amount of Income tax and existing surcharge) is proposed as Education Cess.

2. Interest on NRE, FCNR & RFC Account
Any interest paid or credited on or after 1st September, 2004 in respect of deposits in NRE, FCNR and RFC account of an individual shall be taxable at normal rates of taxation. The bank shall be required to deduct tax at 33.66% (i.e. Income Tax 30% + Surcharge 10% + Education cess 2%). However, if such deposits are with an Indian company or bank which is an Indian Company not being a private company as defined in the Companies Act, 1956 (1 to 1956), the rate of TDS shall be 22.44% (i.e. Income Tax 20% + Surcharge 10% + Education cess 2%).

3. Securities Transaction Tax (STT) & Capital Gains

The following provisions are applicable from a date to be notified !
by the Central Government

Securities Transaction Tax (STT)

a) Every recognized stock exchange shall collect the STT @ 0.15% from every person at the time of purchases of securities in that stock exchange. This is only purchase side tax and no tax is collectable at the time of sale of securities.

b) Securities would include derivatives like futures & options.

c) All mutual funds, all FIIs operating from different countries including Mauritius would also be liable to pay STT.

d) Thus, the NRI’s shall be paying 0.15 % cost for every purchase of investments. Effectively, you shall pay Rs.150 STT on every Rs.1,00,000 purchases.

Long Term Capital Gain
The income by way of Long term capital gain in respect of securities (including investments in shares) is exempted from tax, if the transaction of sale is entered into a recognized Stock Exchange in India after a specified date.

Short Term Capital Gain
The tax on short term capital gains in respect of securities (including investments in shares) if the transaction of sale is entered into a recognized stock exchange in India after a specified date shall be chargeable to tax at the flat rate of 11.22% (i.e. Income Tax 10% + Surcharge 10% + Education cess 2%).

4. Dividend ping
Currently, to curb tax avoidance through dividend ping, like shares, if units are purchase within a period of three months prior to the record date for declaration of dividend or distribution of income and are sold within three months after the record date, the loss, if any, arising is ignored to the extent of dividend or income is exempt from tax. It is now proposed that in respect of units the minimum period of holding after the record date is to be increased from 3 months to 9 months to be eligible to claim loss on sale of units.

5. Bonus ping
The investors of the units of mutual funds were eligible to claim losses on sale of original units on which Bonus uni!
ts were received irrespective of period of holding. Now, it is provided that the loss on sale of existing units (on which bonus units are issued) will be disallowed if the original units are held for a period of less than 3 months prior to the record date or for a period of less than 9 months after the Record Date.

The Loss disallowed shall be treated as cost of acquisition of the bonus units.

However, the loss will not be disallowed if he re-sales entire units (i.e. the bonus units as well as original units) within a period of nine months from the record date.

6. Permanent Account Number (PAN)
It is now compulsory for the NRI’s to obtain the Permanent Account Number (PAN) and submit to the payer of the income.

7. Credit of Tax Deducted at Source (TDS)
For the purpose of assessment, the credit for tax deducted at source shall be given to the Non Resident Indians or Resident Indian (from whose income the tax has been deducted) on the basis of the annual statement of TDS issued by the prescribed authority. The present system of submission of TDS certificate is replaced by Annual Statement of TDS.

8.Other Miscellaneous Proposals
Any gift/receipts of more than Rs.25,000 by any individual / HUF from persons other than prescribed relative is deemed to be a income. (The receipts in nature of inheritance, tax exempted income, marriage gift to the extent of Rs.1,00,000 or amount received in contemplation of death, recognition of services, consideration of goods and services are excluded).

The total exemption from tax on the income up to Rs.1,00,000/- is applicable to residents only (subject to conditions).

NOTE:
The above proposals are effective only after The Finance Bill, 2004 is passed by the Indian parliament and assented by the President of India.

Once this procedure is completed, the proposals shall be effective w.e.f.1st April, 2004 (i.e. for Financial Year : 2004-05 and Assessment Year : 2005-06) un!
less otherwise stated like exemption from Long Term Capital Gain and Securities Transaction Tax (STT) will be effective from the date notified by the Central Government.

DISCLAIMER:
This document should not be considered as substitute for specialized professional advice and expert guidance may be sort before acting upon.
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Impact of Budget on NRIs
By Personalfn.com

The Budget highlights for NRIs is contributed by nritaxservices.com.

INCOME TAX RATES

No change in existing Income Tax Rate and Surcharge otherwise stated below.

An Additional Surcharge @ 2% (on aggregate amount of Income tax and existing surcharge) is proposed as Education Cess.

INTEREST ON NRE, FCNR & RFC ACCOUNT
Any interest paid or credited on or after 1st September, 2004 in respect of deposits in NRE, FCNR and RFC account of an individual shall be taxable at normal rates of taxation. The bank shall be required to deduct tax at 33.66% (i.e. Income Tax 30% + Surcharge 10% + Education cess 2%). However, if such deposits are with an Indian company or bank, which is an Indian Company not being a private company as defined in the Companies Act, 1956 (1 to 1956), the rate of TDS shall be 22.44% (i.e. Income Tax 20% + Surcharge 10% + Education cess 2%).

SECURITIES TRANSACTION TAX (STT) & CAPITAL GAINS
The following provisions are applicable from a date to be notified by the Central Government

SECURITIES TRANSACTION TAX (STT)
a) Every recognized stock exchange shall collect the STT @ 0.15% from every person at the time of purchases of securities in that stock exchange. This is only purchase side tax and no tax is collectable at the time of sale of securities.

b) Securities would include derivatives like futures & options.

c) All mutual funds, all FIIs operating from d!
ifferent countries including Mauritius would also be liable to pay STT.

d) Thus, the NRIs shall be paying 0.15% cost for every purchase of investments. Effectively, you shall pay Rs 150 STT on every Rs 100,000 purchase.

LONG TERM CAPITAL GAIN
The income by way of long-term capital gain in respect of securities (including investments in shares) is exempted from tax, if the transaction of sale is entered into a recognized Stock Exchange in India after a specified date.

SHORT TERM CAPITAL GAIN
The tax on short-term capital gains in respect of securities (including investments in shares) if the transaction of sale is entered into a recognised stock exchange in India after a specified date shall be chargeable to tax at the flat rate of 11.22% (i.e. Income Tax 10% + Surcharge 10% + Education cess 2%).

DIVIDEND PING Currently, to curb tax avoidance through dividend ping, like shares, if units are purchase within a period of three months prior to the record date for declaration of dividend or distribution of income and are sold within three months after the record date, the loss, if any, arising is ignored to the extent of dividend or income is exempt from tax. It is now proposed that in respect of units the minimum period of holding after the record date is to be increased from 3 months to 9 months to be eligible to claim loss on sale of units.

BONUS PING
The investors of the units of mutual funds were eligible to claim losses on sale of original units on which Bonus units were received irrespective of period of holding. Now, it is provided that the loss on sale of existing units (on which bonus units are issued) will be disallowed if the original units are held for a period of less than 3 months prior to the record date or for a period of less than 9 months after the Record Date.

The loss disallowed shall be treated as cost of acquisition of the bonus units.[CRLF!
]
However, the loss will not be disallowed if he re-sells entire units (i.e. the bonus units as well as original units) within a period of 9 months from the record date.

PERMANENT ACCOUNT NUMBER (PAN) It is now compulsory for the NRIs to obtain the Permanent Account Number (PAN) and submit to the payer of the income.

CREDIT OF TAX DEDUCTED AT SOURCE (TDS) For the purpose of assessment, the credit for tax deducted at source shall be given to the Non Resident Indians or Resident Indian (from whose income the tax has been deducted) on the basis of the annual statement of TDS issued by the prescribed authority. The present system of submission of TDS certificate is replaced by Annual Statement of TDS.

OTHER MISCELLANEOUS PROPOSALS

Any gift/receipts of more than Rs 25,000 by any individual/HUF from persons other than prescribed relative is deemed to be a income. (The receipts in nature of inheritance, tax exempted income, marriage gift to the extent of Rs 100,000 or amount received in contemplation of death, recognition of services, consideration of goods and services are excluded).

The total exemption from tax on the income up to Rs 100,000/- is applicable to residents only (subject to conditions).

NOTE:
The above proposals are effective only after The Finance Bill, 2004 is passed by the Indian parliament and assented by the President of India.

Once this procedure is completed, the proposals shall be effective w.e.f. 1st April, 2004 (i.e. for Financial Year: 2004-05 and Assessment Year : 2005-06) unless otherwise stated like exemption from Long Term Capital Gain and Securities Transaction Tax (STT) will be effective from the date notified by the Central Government.

DISCLAIMER:
This document should not be considered as substitute for specialized professional advice and expert guidance may be sort before acting upon.
------------------------------------------------
A LETTER ISSUED BY FEDERAL BANK TO NRI'S
------------------------------------------
Dear Sir

This is to apprise you about the tax proposals pertaining to NRIs in the
recently announced Union Budget. There had been widespread apprehensions,
pep talks and knee jerk reactions after the proposal has been delivered in
the budget speech. Kindly note that these are proposals only and will take
effect only after The Finance Bill, 2004 is passed by the Indian parliament
and assented by the President of India. For the information of our valued
patrons , we would like to clarify the details of the proposal as below.

What is the proposal?

Vide Part B, XI. Tax proposals, paragraph 101, of Budget 2004-2005, the
Hon'ble finance minister has proposed to withdraw exemptions on interest
earned on bank deposits, hitherto available to NRIs.

What is the impact of this proposal?

Impact of the above proposal is that any interest paid or credited on or
after 1st September 2004 in respect of NRE, FCNR accounts of an individual
with any bank in India shall be taxable at normal rates as prescribed for
residents. This is applicable to returned Indians who are maintaining FCNR
or RFC deposits.

Banks in India shall be required to deduct tax at source from the interest
to be paid / accrued at 30.60% (Income base 30% + Educational cess 2%
thereon). Those who do not have interest income of more than
Rs.50,000/- and having no tax liability can file a declaration in Form 15G
in which case bank will not deduct any tax from the interest. The tax
deducted at source can be claimed as refund by filing the return of income
as per Income Tax Act provided the tax deducted is in excess of the tax due
for the particular assessment year.

How NRIs will be affected by the new proposal? (If it is implemented)

You need not become panicky on account of this proposal. Vide Part B, XI.
Direct Taxes, paragraph 96, of Budget 2004-2005 finance minister also
guarantees that no person with a taxable income of Rs.100000/- will be
required to pay any tax. To clarify this further, we quote the relevant
portion of speech "While everyone will file his return according to the
current tax slabs and tax rates, and compute his taxable income and the tax
payable, any one with a taxable income of Rs.100, 000 will have his income
tax liability automatically rebated".

In addition to this, exemption is available under Sect.80L for interest on bank deposits up to Rs.12000/-. So all together if a person who is not having any other taxable income in India need not pay income tax on interest earned up to Rs.112000/- on bank deposits.

To cite an example, assume that you earn an interest of Rs 100000 from your NRE and FCNR Deposits in a financial year. We will have to deduct Rs 30600 as tax at source (30. 60% of Rs 100000). But you can claim a refund of the
full amount by filing the return and you need not pay any amount as tax.

Your tax liability at various interest incomes is worked out below. (Assuming that you are not having any other income in India).

Interest income 1,00,000 1,12,000 1,50,000
Less: deduction u/s 80L 12,000 12,000 12,000
Taxable Income 88,000 1,00,000 1,38,000
Tax payable on above 6,600 9,000 16,600
Less: Rebate u/s 88D 6,600 9,000 Nil
(new section proposed
in the budget)
Balance Nil Nil 16,600
Add: Surcharge (2% cess) Nil Nil 332
Net tax payable Nil Nil 16,932

ALL AMOUNTS IN RUPEES

At the present interest rates, you will have to have around 30.00 Lakhs in
your single name in as deposit in NRE/FCNR to become liable to be taxed
under the provisions.

If the proposal is implemented,!
interest earned on NRO deposits will be
treated at par with interest earned by NRE deposits from income tax angle.If
you donot wish to repatriate your deposits, then you can think of placing
your money in NRO term deposit, since NRO term deposits will earn them
interest as high as 5.75 % p a. However there is a possibility that NRO
scheme will be amended in the near future and NRO term deposit scheme will
be withdrawn.

Disclaimer

The information contained above has been obtained from sources believed to
be reliable. While taking utmost care in making the report, the authors or
the bank does not take responsibility for the consequences of the
information All information and opinion are subject to change without
notice. T he recommendations may not be suitable to all the investors
------------------------------------------------
Major NRI tax sop is history

TIMES NEWS NETWORK RELEASE
---------------------------
NEW DELHI: Non-resident Indians are going to lose following the finance minister’s decision to tax interest earned on all types of non-resident external deposits.

This might lead to fragmentation of deposits and is likely to increase the redemption pressure on these instruments. This means that banks will deduct 10% TDS before paying interest on these accounts.
It is likely to result in substantial collections for the government because the cumulative amount of NRI deposits currently stands at Rs 140,000 crore. If the government puts NRI deposits under TDS, lots of individuals will break up their holding into smaller deposits of less than Rs 2 lakh so that their interest income falls below the TDS threshold, said N Parthasarathy, AVP, NRI services at UTI Bank.

Most bankers, however, feel that there is unlikely to be any major slow-down in collection of NRI deposits. ICICI Bank officials said that as int!
erest rates on these deposits have been progressively reduced over the past 12 months, flow of speculative NRI deposits have slowed considerably.

However, NRI remittances from the Gulf, which account for almost Rs 60,000 crore of all total NRI deposits may not be affected. These NRIs have no option but to send their salaries home, said a banker.
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Thanks for your detailed explanation.

The wealthy Europian and American NRI's have the option to divert the money to some other ways, but the poor Gulf NRIs have no option but to send their salaries home.

Like the Air India/Indian Airlines charging exorbitent fares from the Gulf Sector and covering their loss from the Europian/American Sector, this taxation also will effect the Gulf sector working class.
------------------------------------------------
Akabar
7/26/2004
Message:
I do strongly agree with the comments of TOM, The goverments, state or central, are hardly trying to squeeze this poor community who just struggling to live for their family. The authorities, of course, know well that these are the easiest way to become adjust their unfilled pans with minimum protest. By ousting the NDA govt. almost of NRI were happly among others, and expected much favourable actions from the new UPA govt. but unfortunately, the first shoot shot to NRIs by imposing taxes to their accounts. Chidambaram's next expected move will be direct taxes to NRI/FCNR funds. The impose on interest is the first step and test dos.
------------------------------------------------
Amal
7/29/2004
19:14:37
Message:
Pls inform the details of NRI Taxes that are imposed. Also kindly explain the tax percentage and what is the slab for the tax exemption.

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