Budget 2017: There is a wish list across everyone’s mind and Indians settled abroad/ Non-Resident Indians (NRIs) are not an exception to this.
The Indian Union Budget 2017 is just a few days away and there are lot of speculations on the proposals, given the demonetisation. There is a wish list across everyone’s mind and Indians settled abroad/ Non-Resident Indians (NRIs) are not an exception to this. Let us look at some of the key Budget expectations from NRI perspective:
Rationalisation of tax refund process: Though tax return filing is made electronic, refund tracking and granting of refund claimed in the tax return needs some attention. Currently, refund in excess of Rs 50,000 is processed through paper mode only and most of the NRIs are facing difficulty to collect these cheques and honour it within the stipulated time.
They also face difficulty in claiming the tax refunds as they may not have operative bank account in India. There is no mechanism for direct remittance of refund amount to the foreign bank account of the NRI and this issue needs to be addressed. Hence, if government could work towards introducing a provision to ease remittance of refund by way of wire transfer or any other electronic mode, this would be a big relief to NRIs.
Tax Residency Certificate: Tax Residency Certificate is required from the tax authorities of the country in which the NRI qualifies as a resident in order to avail benefits under tax treaties entered into by India. To add to the complexity, the tax officers demand the Tax Residency certificates (‘TRC’) during the scrutiny proceedings to substantiate the treaty relief claimed in return of income. NRI should be given some relaxation in this regard and be allowed to claim the treaty relief on producing copy of passport, host country tax return etc. as procuring a TRC is long drawn and tedious task in some countries, within the stipulated timelines.
Parity in tax treatment: Another expectation could be regarding the parity in tax treatment with resident Indians. According to the current income tax law, a resident Indian is required to pay Tax Deducted at Source (TDS) on income only if the amount of income earned is beyond a certain limit in a financial year but this is not the case with non-residents. For instance, a resident individual is liable to pay TDS on rental income only if it exceeds Rs 180,000 per year. On the contrary, for a non-resident Indian, TDS is applied based on the applicable slab rate and his income in India. Government could think of revamping the tax treatment process and bring parity to tax payers irrespective of their residential status in India.
Under the current Indian tax laws, if a tax payer’s total income (excluding Long Term Capital Gains – LTCG) is below the basic exemption limit (Rs 250,000 at present), the LTCG can be adjusted against the unexhausted portion of the same. However, this benefit is not available to non-residents.
Therefore, even if the taxable income is NIL, the non-residents would have to pay tax on LTCG at the applicable rates. The Finance Ministry could look into providing this benefit of utilizing the unexhausted basic exemption limit against LTCG for non-residents as well.
Treaty relief at the withholding stage: Considering the large globally mobile workforce, the Budget should clarify rules relating to treaty relief. Ideally speaking, TDS may be ceased for employees who are likely to qualify as a non-resident at the withholding stage. In the absence of provisions under domestic tax laws, the employers generally do not provide relief to the employee at the withholding stage and continue to deposit the tax amount, although the employee remains outside India. At the time of filing the return of income, an exemption is to be claimed based on the tax treaty entered into by India and the respective host country, leaving the employee with large refund situations. Therefore, Government could think of introducing clear provisions on this matter.
While every taxpayer has his/ her own wish list on what can be expected from the Budget, let us wait for the final outcome.
(By Sreenivasulu Reddy, Tax Director, People Advisory Services, EY India. Views expressed are personal)