On February 28, Indian Budget 2013 was presented in the Parliament. I have selected 15 major proposals that could affect NRIs and have analyzed them as follows:
1. Tax credit of Rs. 2,000 for Individuals with income upto 5 lakhs:
The budget proposes to give tax credit of Rs. 2,000 to individuals with total income up to 5 lakhs. However, it is not available for NRIs.
2. Surcharge @ 10% for income > Rs. 1 Crore:
NRIs having taxable income of more than Rs. 1 crore will have to pay 10% surcharge on Income tax. The effective marginal rate of tax will increase from 30.9% to 33.99%.
3. Surcharge on Dividend Distribution Tax increased:
Surcharge on Dividend Distribution Tax increased from 5% to 10%, effectively increasing DDT paid by companies from 16.2225% to 16.995%.
4. Tax on Distributed Earnings on Debt Mutual Funds increased from 12.5% to 25%:
While dividend income still continues to be tax free in the hands of recipients. Any NRI investing in debt mutual fund with dividend or dividend reinvestment option will receive less amount of dividend due to higher taxes being paid by the mutual fund schemes. The tax on dividend on debt schemes would be 28.325% (25% + 2.5% surcharge + 0.825% education cess).
5. TDS @ 1% on Transfer of Immovable Properties (except agricultural land) of over Rs. 50 lakhs:
While TDS rules are applicable for sale of any immovable property by NRIs, NRI buying property also needs to comply with the TDS provisions. For any purchase of immovable property of over Rs. 50 lakhs, NRIs will be required to get TAN (in addition to having a PAN), deduct TDS, deposit TDS, issue TDS certificate to the seller.
6. Tax on royalty and fees for technical services to non-residents increased from 10% to 25%:
If you are a NRI receiving royalties or fees for technical services from India, you will have to pay tax at 25%. However, if there is a Double Tax Avodance Agreement (DTAA) between country of your residence and India, you will still be taxed as mention in the DTAA.
7. Tax on interest from rupee-denominated infrastructure bonds decreased from 20% to 5%:
Tax on interest on long term infrastructure bonds in foreign currency was previously reduced to 5%. The benefit was extended to NRIs for investment made through a designated bank account in rupee denominated long term infrastructure bonds.
8. 20% Withholding tax on Distribution of Profits through Shares Buy Back:
Unlisted companies will have to withhold 20% tax on distributed profits i.e. price of buyback less amount received on issue of shares, through shares buy back. This was introduced to curb the companies using shares back shares route instead of paying dividend route to save dividend distribution taxes. If you are a NRI Shareholder of such companies, your shares buy back amount will be reduced by 20% withholding tax.
9. Security Transaction Tax (STT) Reduced:
|Security||Current STT||Proposed STT|
|MF/ETF redemptions at fund counters||0.25 %||0.001%|
|MF/ETF purchase/sale on exchanges||0.1 %||0.001%, only on Seller|
The reduction in Securities Transaction Tax (STT) will decrease cost of acquisition and increase net sales amount, however, it will be by very small amount.
10. Additional Interest deduction of Rs. 100,000 to First Time Buyers:
NRIs who are the First Time buyers can get an additional interest deduction of Rs. 100,000. If 100,000 interest deduction is not exhausted during the year, it can be claimed next year i.e. 2014-15. However, this deduction is available only to first time buyers and only if the value of residential house and value of loan does not exceed Rs. 40 lakhs and Rs. 25 lakhs respectively.
11. Customs Duty: Increase in limit for importing duty free gold:
Duty free gold limit increased for male Passenger and female passenger was increased from 10,000 and 20,000 to Rs. 50,000 and Rs. 100,000 respectively. NRIs can bring more gold into India without paying customs duty.
12. Service Tax:
a. Levy of Service Tax on Air conditioned restaurants:
NRIs dining in the air conditioned restaurants will have to pay for their meals due to levy of service tax on Air conditioned restaurants.
b. Abatement reduced from 75% to 70% for certain properties:
NRIs buying homes or flats with a carper area of 2,000 sq. ft. or more or for the price of Rs. 1 Crore or more have to pay higher service tax as the service tax abatement to builders was reduced for such properties.
13. Wealth Tax: Change in the definition of Urban Land:
|Capital Asset||Old Definition||New Definition|
|Urban Land:||Within 8 kilometers from the local limits of any municipality as specified by the Central Government,||Within 2 k.m. from any municipality with population of 10,000 – 100,000; or
Within 6 k.m. from any municipality with population of 100,000-1,000,000; or
Within 8 k.m. from any municipality with population of more than 1,000,000
With growing population and rocketing land prices, change in definition could have far reaching effects for NRI owning Urban Land as the value of such asset would be included in calculation of Taxable Wealth. As a result, NRIs may have to comply with the Wealth Tax Act by paying Wealth Tax and filing Wealth Tax returns.
14. 15% Investment Allowance to Manufacturing Companies:
NRI planning invest over 100 Crores in a manufacturing operation of a Company for new or expansion of project will get 15% of the total investment made in new Plant or Machinery in India during April 1, 2013 to March 31, 2015 as investment allowance.
i. TRC (Tax Residency Certificate) is necessary but not sufficient for claiming DTAA benefits.
ii. Donations to National Children Fund eligible for 100 percent deduction.
iii. Modified provisions of GAAR effective from 1/4/2016.
iv. Direct Taxes Code (DTC) Bill to be presented by end of the Budget Session
v. A number of administrative measures were proposed:
– Extension of refund banker system to refund more than Rs. 50,000
– Technology based processing of returns and refunds
– Extension of e-payment through more banks
– Expansion in the scope of Annual Information Returns (AIR) by Income-tax Department
– Mandatory e-filing for more categories of assessees