The hopes of over 1.4 billion Indians seem to be centered around the Union Budget as Finance Minister Nirmala Sitharaman prepares to present her fourth consecutive budget on 1 February 2022. Industry and individuals alike are looking forward to the announcements and amendments expected to set the economy back on track.
Amongst the taxpayer base, are the Non-Resident Indians (NRI) who play a significant role in nation-building and economic progress. They are part of the significant individual taxpayer base which contributes almost 35 per cent -40 per cent of direct tax revenues. We have seen in previous budgets that the government has introduced relaxations for individual taxpayers which are beneficial for NRIs taxpayers as well. However, there are certain provisions under the Income-tax Act, 1961 (Act) which can be reviewed vis-a-vis the applicability and impact for NRIs.
Certain income earned by NRIs is subject to tax withholding at the applicable slab rates, which results in taxes being withheld at 30 per cent (plus surcharge and cess). This creates a disparity between resident and NRI taxpayers. For example, the rate for tax deduction at source (TDS) on rental income is specified at 5 per cent or 10 per cent for resident taxpayers based on the category of payment. However, such rental payments are often taxed at 30 per cent (plus surcharge and cess) in case payment to non-resident property owners.
Similarly, buyer of an immoveable property is required to carry out TDS at the rate of 1 per cent where the seller/ property owner is a resident, and the sale consideration is Rs 50 lakh or more. However, in case of an NRI owner, the buyer is required to withhold the taxes at the applicable tax slab rates. This typically results in a huge refund for NRI as the effective tax on rental income/ capital gain on sale of property are much lower.
Relaxation or rationalization of TDS rates for NRIs will provide significant relief to taxpayers and the same will not impact overall government revenue.
Taxation of foreign salary in case of overseas employment
With the rise in cases of COVID19, travel restrictions get imposed by many countries due to which the NRIs have been stuck in India for longer period of time due to travel restrictions, delay in visa approvals, etc. However, current day technology tools allow employees to continue working for foreign employers even while being in India. This results in NRIs becoming taxable in India or significant incremental tax arising in India due to higher tax rates in India since their foreign income is also subject to tax withholding by employers. There can be significant cash blockage as tax refund / foreign tax credit can be claimed only on filing of return after the end of the financial year.
Therefore, it is hoped that government provides relaxation in taxation of overseas employment income wherein the taxability should not arise for overseas income in exceptional cases like COVID19 when employees are stuck in India.
Relaxation in presumptive taxation
Since only resident individuals can take benefit of the presumptive taxation (44AD, 44ADA) scheme, NRIs are unable to avail such a scheme. It is an expectation that government extends the provision of presumptive taxation to NRIs as well.
Simplified Income Tax Return Forms
To promote ease of tax compliances, the government may reintroduce simplified tax return forms for NRIs who have no capital gains or business/ professional income in India or having income within specified threshold limits. Presently, the simplified tax return forms i.e., ITR 1 Sahaj and ITR 4 (for presumptive tax in case of professional income) can be filed only by individuals who are resident in India.
These measures could help NRI reduce their tax liability and also discharge their tax compliance obligations in India in a smooth and convenient manner.
