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Ever since the Indian government presented the finance bill (now before the parliament), which includes taxation on NRI deposits, NRIs here are pulling away their deposits and re-depositing them in local banks here, the chairman and the financial adviser of the NRI Federation here told the Times Business yesterday.
V. T. Saileswaran, chairman, and Jose Chacko (*), honorary financial adviser, of the NRI Federation also noted that this ruling will greatly affect Kerala. “Kerala will suffer the most because NRKs (non-resident Keralites), one of the biggest remitters in India, will now look for other means. We should understand that Kerala is greatly dependent on NRK deposits,” they said.
However, this means that they will turn their attention to other areas, and perhaps invest in land and property. This will in turn boost land and property values, they noted.
The finance bill has done away with the exemption available to NRIs in respect of interest on NRE deposits and FCNR deposits with banks with effect from September 1, 2004. “This means that the interest accrued after September 1, 2004, will be included in the taxable income. Banks are required to deduct income tax on NRE and FCNR deposits of NRIs at the rate of 20 per cent. An education cess of 2 per cent is applicable on the tax and surcharge. If it is a foreign bank the rate will be 30 per cent plus,” Jose Chacko, who has done an in-depth study on the same, explained.
An NRI is not required to pay any income tax if his taxable income is not more than Rs50,000. “In this case an NRI has to file his return of tax for getting the refund of tax deducted by banks.
“Since the requirement of issuing the TDS (tax deducted at source) certificates by the deductor is abolished (with effect from April 1, 2005), the deductee will get the credit on the basis of the annual statement issued by the prescribed income tax authority or the agencies authorised by that authority.
“This annual statement will be prepared on the basis of quarterly statements sent by the tax deductors. It is obvious that such consolidation will be done on the basis of PAN (Permanent Account Number).
Even though NRIs are exempt from obtaining the PAN under section 139A(8)(d) of the Income Tax (IT) Act, procedurally the IT department will not accept the returns of income from any person who has not obtained or applied for PAN. All these make it compulsory to get a PAN by every person who want to claim refund. In effect if any person wants a refund of tax deducted by banks, where the tax deducted at source is more than the tax payable, he has to:
Compulsorily get a PAN number
Get the annual statement of tax deducted and paid
File the return of income every year.
Appear before tax authorities in India, if summoned.
For those NRIs who are residing far away and visiting India not very often, compliance of all these requirements will create unwarranted difficulties.
“In our view, NRIs may not have any objection to paying marginal tax and thereby contribute to the economic development of the nation, but the hardship of preparing accounts, appointing consultants, filing tax return, awaiting assessment, getting the refund etc are going to be unpleasant experiences for NRIs,” Saileswaran and Jose said.
“The NRIs can ask for a lower percentage of tax deduction or complete exemption of tax, if he is able to get a certificate from the assessing officer of his area of residence in India, by satisfying him about source of income and the need to deduct tax at a lower rate or exempt the same totally.
“Banks are required to deduct income tax if the interest credited or paid in excess of Rs5,000. This makes it compulsory for an NRI to file the Return of Income even though he has no taxable income,” Jose said
The TDS collection by banks will be shown in Table A and the tax implications of various levels of income will be illustrated in Table B, assuming that the only source of income is the bank interest.
· 1 decade ago