NRIs heave a sigh of relief
Sinha grants NRIs various sops, including repatriation of earnings in foreign exchange
Much against the expectations of Non-Resident Indians, the finance minister Yashwant Sinha, in his budget speech of 2002-03, offers to take the necessary steps to liberalise the capital account, a move which benefits NRIs largely. In the budget speech, Sinha specified the following:
- Full convertibility of deposit schemes for NRIs. The existing Foreign Currency Non-Resident (FCNR(B)) scheme and the Non-Resident External rupee (NRE) scheme will continue to be repatriable.
- Schemes which do not offer full convertibility to NRIs will be discontinued from April 2002. The existing balances in the non-resident (non-repatriable) rupee accounts will be allowed to be credited on maturity to the convertible NRE account.
- NRIs will be free to repatriate their current earnings in foreign currency. The earnings would include rent, dividend, pension, interest, etc, based on appropriate certification.
The finance minister finally turned his eye to this important section of our society. The budget provisions are much more than what NRIs had wished for. NRIs were expecting a change in regulations governing long-term capital gains, which unfortunately, has not come through.
As per section 112 (1) (a) of the Income Tax Act, 1961, an Indian resident is granted a threshold limit of Rs 50,000 for the payment of long-term capital gains tax, which is 10% for sale of shares/debentures, and 20% for property.
However, as per section 112 (1) ©, which pertains to NRIs, there is no such threshold limit granted. So, for an income of Rs 60,000, an Indian resident gets an exemption for Rs 50,000 and is eligible to pay tax only on the balance Rs 10,000; while NRIs gets no threshold limit exemption and are forced to pay tax on the entire Rs 60,000. It was this anomaly which NRIs were against, and were demanding on-par treatment with Indian residents.
NRIs were also lobbying for changes in property matters. Fed up with the high stamp duty and registration fee in India, they wanted streamlining of these charges, specially in Maharashtra. Budget 2001-02 had practically no sops for NRIs. And post-budget, faced with a major setback in the markets due to the payment crisis, NRIs kept their hands off the Indian markets for a while.
However, the recent aggressive steps taken by the government to disinvest stake in IBP and VSNL were largely appreciated by NRIs. Having stayed away from the stock markets for quite a while, NRIs now seem pretty eager to stage a comeback to the Indian markets.
Existing facilities/incentives available to NRIs
Income received and accrued outside India from a business controlled in or a profession set up in India, income (not bearing from a business/profession) received and accrued outside India or even income earned and received outside India in 1993-94 but later remitted to India, is tax-free. Some assets are totally exempt from taxation, like house occupied for business/profession, house for residential purpose, property held under a trust, assets held as stock-in-trade in business, bank deposits and Resurgent India Bonds.
However, various assets like car, jewellery, gold, silver, urban land and cash on hand are taxable. NRIs are also charged with wealth tax @ 1% of net wealth exceeding Rs 15 lakh on the valuation date and a service tax for services rendered.
Dual taxation is defined as the levying of taxes for the same tax-payer in two countries for the same income earned during the same period of time. Since NRIs are covered by laws of two nations, they are required to pay for the income earned in same period in both nations. However, to avoid any hardship to NRIs and with view to see that national economic growth does not suffer, the government has entered into Double Taxation Avoidance Agreements (DTAA) with various countries. Such tax treaties serve the purpose of providing full protection to tax payers against double taxation, and thus, preventing the discouragement in free flow of international trade and international investment.
NRIs enjoy the benefit of tapping ample investment opportunities in stock markets by investing in primary and secondary markets through portfolio investment schemes. The limit was 10% of company’s paid-up capital earlier (20% in public sector bank) and could be raised to 24%, subject to company approval. However, NRIs can now go as high as 30% of paid-up capital. Though ICICI Bank is an exception where government allows investment up to 49%. Besides, they can go for bonds and debentures like RBI Relief bonds where the rate of interest is down to 8.5%.
NRIs can open various kinds of accounts depending upon their needs and requirements, like NRE/NRO/NRNR accounts. It is interesting to note that the total NRI deposits in banks under various schemes was Rs 10,585 crore in March 2001. Quite a few banks extend loans against investments or foreign currency loans against bank deposits. Home loans, too, are instantly provided to NRIs at competitive interest rates to meet their property needs in India.
In the monetary and credit policy 2001-02, the procedures of financial transactions of NRIs such as remittances, investments and maintenance of bank accounts have been considerably simplified.
The ITC Classification of Export and Import Items 1997-02 provides for certain items to be freely imported by NRIs. However, some specified items can be imported only through licence in that behalf. Imports are also allowed under Baggage Rules, 1998, only if it does not involve foreign exchange remittance.
PIO Card is a simple and beneficial card for persons of Indian origin (PIO) living abroad and having foreign passports. It ensures a visa-free entry to India and many other special economic, educational, financial and cultural benefits to its holders. Such cardholders are considered on par with NRIs in various matters like property, housing and education.
Almost 15% of the total seats in some private medical and dental colleges in India are reserved for PIO/NRI children. Thus, out of the total 3,000 seats available in such educational institutes, approximately 450 are made available for NRI children without their being required to appear for any exam.
Out of the various housing projects undertaken by LIC to provide housing to its policy holders, almost 5% is reserved for allotment to NRI policyholders. LIC Housing Finance also has a separate scheme for individual housing loans to NRIs, called Grih Shobha, which grants a maximum of Rs 25 lakh for construction/purchase/extension of flat. LIC also accepts repayment of outstanding balance of housing loans from returning Indians in Indian currency.
The New India Assurance Company, in agreement with the government of Kerala, has devised a special scheme to meet NRI requirements for personal accidents and expenses, following death, which may occur in foreign countries due to accidents or sickness. The premium payable in such cases is nominally charged compared to the risk cover. State Bank of Travancore also has a scheme for NRE account-holders for personal accident covers including medical expenses of family and unfortunate death of NRIs. However, the cover is available only for expenses incurred due to hospitalisation in India.
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