How India's NRI Taxation is Affecting Remittance
Due to the rising Coronavirus crisis, currency markets around the world are moving towards the purchase of stronger currencies like United States Dollar (USD) and United Arab Emirates Dirham (AED). Demand for such currencies and Gold is rising rapidly as people move towards safe-haven assets.
In a similar trend, United Arab Emirates Dirham touched its highest level gain against Indian Rupee (INR) in the last week of March 2020. Expats who regularly send money back home, rushed to transfer huge amounts. They wanted to take advantage of the higher forex rate. But, for a few, their hopes were soon doused in a dose of reality when financial experts warned them about possible taxation of their income in India, their home country.
Up until now, Indians abroad that are classified as ‘Non-Resident Indians’ (NRIs) if they pass certain criteria were exempted from income tax in the country if their income is earned or accrued abroad.
Who is defined as a 'resident of India' under Income Tax regulations of the country?
As per Income Tax regulations, any citizen or expat will be termed as ‘resident of India’ if:
- He/She was in India for 182 days or more during a financial year.
- If he/she was in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.
So, therefore if a person did not satisfy the condition laid out above then he is considered a NON RESIDENT INDIAN. In case you are an Indian Citizen and you leave India for employment outside of India then the 60 days minimum period will be increased to 182 days.
How is Taxation determined with residency status?
An NRI’s income taxes in India depend upon his residential status for the year. If a person’s status is ‘resident’ then his global income is taxable in India.
If his status is ‘NRI’ then only the income which is earned or accrued in India is taxable in India. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of assets situated in India, income from fixed deposits or interest on a savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India for NRIs
What created chaos and worrisome nights amongst NRI community?
In its Finance Bill 2020, India announced new rules and regulation for Non-Resident Indians (NRIs). Until now, only individuals who stayed in India for at least 182 days in a financial year were considered as residents of the country but the new rule proposed to decrease the tenure to 120 days for all NRIs.
Due to the new proposed regulation, more people will come under the umbrella of Indian taxation system. If it becomes an act then many NRIs would have to pay huge amounts in tax liability.
NRIs mentioned their plight to the government and hence the ministers took stock of the situation.
An amendment was then passed for the bill that the reduced period of 120 days shall apply, only in cases where the total Indian income (i.e., income accruing in India) of such visiting individuals during the financial year is more than INR 15 lakh (about AED 72,000 or USD19,760).
But, speculations of a new amendment has struck the market where experts suggest that the Indian government could impose some sort of taxation on NRIs to fight back the COVID-19 crisis which has left the economy broken.
Emirati Dirham still stays strong against major currencies and hence expats in UAE want to benefit by remitting their income earned to their home nations. If a stringent taxation system is followed in India, then it may lead to incorrect reporting of income by expats. Won't that be a shame?