New Delhi: Even as expatriates will soon be taxed for their income in India, they would continue to enjoy the tax exemptions on the interests accruing to their deposits in the Non-Resident External (NRE) account and Foreign Currency Non-resident (FCNR) accounts.
The salaries of expatriates are generally deposited in the NRE account. And they use Non-Resident Ordinary (NRO) accounts for financial dealings in the country. Currently, the interest on NRO deposits is being taxed and this will continue.
Convener of the Direct Tax Code (DTC) task force Akhilesh Ranjan said that the new provisions announced in the Union Budget is meant to target those with high income, who were not permanent residents of any country, and escaped from the tax ambit all together.
He further said that an error in framing the provisions of the Finance Bill (or Budget) created the misunderstanding that the entire income of Indian expatriates would be taxed. As the new provision was not clearly spelled out too confusion ensued. An explanation given by the Central Board of Direct Taxes also lacks clarity.
Following the Budget on Saturday there was confusion about the tax liability of Non-Resident Indians (NRIs) on their global income. On Sunday, Finance Minister Nirmala Sitharaman clarified that there is no intention to tax global income of NRIs and only income generated in India will be taxed.
"What we are doing now is that the income of an NRI generated in India will be taxed here. If he is earning something in a jurisdiction where there is no tax, why will I include that into mine that has been generated there?
"Whereas if you have a property here and you have a rent out of it, but because you are living there, you carry this rent into your income there and pay no tax there, pay no tax here ... since the property is in India, I have got a sovereign right to tax," she said in a post Budget interaction with media, the PTI had reported.
In this context it has to be noted that countries, including the G20 nations, had jointly agreed that everyone should be part of a tax system in any of the countries. Moreover, bilateral treaties between India and UAE stipulate on the number of days a person has to stay in a country before he or she is considered as a resident.
Tightening the residency provisions, the Budget had also proposed to reduce the period of stay in India to 120 days from 182 days earlier for expatriates to be categorised as NRIs.
