Published Editorial

Budget 2013: What NRIs should know about the FM's proposals

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The Economic Times

by

Puneet Gupta
Senior Tax professional
EY

"Post-independence, overseas Indians have served as a bridge of friendship and cooperation between India and their adopted homes abroad." - said the Prime Minister, Dr. Manmohan Singh, on 8 January 2013 on the occasion of Pravasi Bharatiya Divas while emphasizing on the Government's commitment to do all that is possible to deepen their connection with India and advance their interests.

However, not much has been offered to the Non Resident Indians (NRIs) by the Finance Minister, Mr. P. Chidambaram, in the Budget 2013-14. But, he did emphasize that Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are imperative sources to finance the estimated $75 billion current account deficit.

The Budget 2013-14 highlighted that the Indian economy is looking at sources to inject funds in various sectors crucial for revival of the growth momentum. NRIs are an important audience that can augment this financial requirement.

Some of key changes proposed in the Budget 2013-14 that may impact NRIs are discussed below:

Investment in rupee denominated long term infrastructure bonds

In last year's Budget, interest received by a non-resident on foreign currency denominated long term infrastructure bonds was subject to a concessional tax rate of 5%.

This year the Budget has proposed to extend such concession even where a non-resident deposits foreign currency in a designated bank account and such money as converted in Rupees is utilized for subscription to a long term infrastructure bond issued by an Indian company.

This will facilitate a non-resident to subscribe to rupee denominated long term infrastructure bonds issued by an Indian company in India.

Investment in Infrastructure Debt Fund set up as a Mutual Fund

In order to accelerate and enhance the flow of long term debt to the infrastructure sector in India, the then Finance Minister, Mr. Pranab Mukherjee during the Budget 2011-12 speech announced the creation of special vehicles in the form of notified Infrastructure Debt Funds (IDF) to attract foreign funds for infrastructure financing.

However, the concessional tax rate of 5% was available on interest received by a non-resident from IDFs only where the IDFs were set up as Non-Banking Finance Company (NBFC).

This year budget has proposed to extend such concession even where the non-resident receives income from IDFs setup as Mutual Funds.

Investment in first home in India

An additional deduction of Rs. 100,000 has been proposed in respect of interest paid by an individual on housing loan. This additional deduction is subject to various conditions like the loan amount not to exceed Rs. 2,500,000 and the value of the property not to exceed Rs. 4,000,000. Also, the individual should not own any other house in India.

It may be a good time for NRIs to buy their first home in India.

Increased duty free allowance for jewellery

The Finance Minister rightly pointed out India's passion for gold and has proposed to increase the duty free allowance in respect of jewellery from Rs. 10,000 to Rs. 50,000 for a male passenger and Rs. 20,000 to 100,000 for a female passenger.

Now on, jewellery will definitely add to the list of gifts NRIs would bring for their family members residing in India. However, this is applicable only for NRIs living abroad for more than one year or those who are transferring their residence to India.

Increased tax liability

A surcharge of 10% on tax has been proposed for an individual whose total taxable income exceeds Rs 1 crore. This is applicable only for the Financial Year 2013-14.

Also, the tax rate for a non-resident, in respect of income from royalty and fees for technical services, is proposed to be increased from 10% to 25%. However, this may be limited by the tax rate as specified under the relevant tax treaty.

In a nutshell, while NRIs may remain financially connected to India by making investments in the country, they may also be subject to higher taxation. Indeed, the Budget 2013-14 turns out to be a mixed bag for them.

(Views expressed are personal)