One way the NRIs can benefit is through routine tax concessions. Most NRIs have the same tax exemptions like a resident Indian and any focus on easing the tax burden or enhancing the exemptions for resident Indians will automatically get extended to NRIs also. One thing the NRIs have been consistently demanding from the Union Government is to ease the burden of compliance. NRIs expect steps from the Budget to ease compliance burden and provide parity with resident taxpayers in certain select areas.
Leniency in residency conditions for 2020-21
During the peak of the pandemic, a large number of NRIs who had travelled to India on business were stuck for more than 4-5 months. This was due to non-availability of flights and most countries banning in-bound flights. This resulted in many NRIs spending more than the maximum permissible days in India. In the previous fiscal year, the government had allowed exclusion of certain stay-days as the pandemic had already started. However, this year is unique since the lockdown was much longer.
It is expected that the government may consider one of the two options. Firstly, it may use different criteria only for this year to determine residential status. The second option is that it may treat this year as a zero year and just carry forward the previous year’s residential status to the current year to avoid any disputes on this subject.
NRIs expect benefits of presumptive tax, like resident Indians
Currently, the Income Tax Act offers the benefits of presumptive taxation on income earned up to Rs50 lakhs. In these cases, the net income is considered at a presumptive rate of 8% of turnover or 6% of turnover if all inflows are digital in nature. However, this facility of presumptive taxation is only applicable to resident Indians. For professionals and small business outfits, this made a lot of business sense.
On the other hand, NRIs are required to maintain detailed books of accounts to claim deduction even for profession related expenses. In an increasingly inter-connected world, there is scope for qualified NRIs with specialized skills to provide professional services in India. The budget would do well to extend the benefit of presumptive taxation to NRIs also.
NRIs want withholding tax on rentals at a lower rate
Most NRIs do plan to settle down in India after their retirement. As a result, the most popular investment among NRIs is a residential property in India. However, since they don’t live in India most of the year, they prefer to lease out the property to professionals and corporates. Therein lies the catch and NRIs have been demanding parity with resident Indians on this front.
Currently, when resident Indians receive rental income, the applicable withholding tax to be deducted by the payer is either 5% or 10% depending on the category of the payer. The catch is that, in the case of NRIs, such rental income is subject to withholding tax at the applicable slab rate, which is normally 30%. Hence NRIs are forced to go through a long process to get refunds. Standardizing this for residents and NRIs would help NRIs.
Tax withheld on immovable property purchased by NRIs
The Union Budget 2013 inserted a specific proviso that any resident Indian selling property above the value of Rs50 lakhs will have to deduct withholding tax at the rate of 1% of the value of the property. This is more of a presumptive tax and the tax is eventually payable only on the capital gains. However, the Union Budget 2013 was silent on the topic of withholding tax on immovable property sold to NRIs.
This is creating a dichotomy as in the absence of clarity; the people who sell property to NRIs are withholding tax at 30%. This is actually a huge anomaly for 2 reasons. Firstly, the withholding tax is imposed on value of property while tax is payable only on capital gains. Secondly, property held for more than 2 years is LTCG and in this case the tax rate is 20% of indexed gains. This dissuades NRIs from buying property. Budget 2021 can do well to clarify that this proviso of 1% withholding tax applies to resident Indians and NRIs.
Miscellaneous demands of NRIs from the Budget
Here are some additional expectations NRIs have from Budget 2021.
- While filing returns, NRIs are made to fill up ITR 2 or 3, which is too cumbersome. The benefits of Sahaj and Sugam should be extended to NRIs also.
- The government can make a start by re-introducing the old simplified tax return forms for NRIs; at least where there are no capital gains.