New Direct Tax Code Proposal, NRIs treated as Not Required Indians!

My View

The tax code is only proposal, given to public domain for discussion, debate & suggestions, in October last week CBDT will make necessary amendment thereafter it will be sent to finance ministry than in winter session of parliament bill will be presented to the parliament,than again some time given to MP's for studding this tax code bill (though most of our Hon. MP's donot understand & donot take trouble to read such big book also), thereafter it goes to Rajaya Sabha, after passing in Rajasabha it will go to President for her Ascent. thereafter it becomes law of the land & Govt trying to complete all these process before 28th February 2010 and wants to implement from1st April 2010 .

This code is very complicated & very harsh on NRI's . iam sure powerful NRI's like L.N.Metal, Hindujas & several Tycoons from US & Maricious definitely bring proper pressure on Govt to protect their interest.

We are concern on how it effect middle income NRIs. The code is not a issue for low income category of NRIs.

There will be lot of opposition in India also on several clauses and even if they get it passed at Lokashabha (because UPA has majority) but in Rajaya sabha there are 220 members & UPA has got only 90 members. therefore recently judges bill though passed in Loksabha could not get through from Rajaya sabha. therefore this Govt is going slow on various bills probably same fate may be for this tax code also.

Please read the report

The Times of India

NRIs treated as Not Required Indians!
Mukesh Pate l6 September 2009, 10:58pm IST
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Indubhai Amin, a non-resident Indian (NRI) settled in the UK earns interest income of Rs 3 lakh on his non-resident ordinary account bank deposit in ndia in the current FY 2009-10. Enjoying his personal exemption limit of Rs 1.60 lakh and the eligible deduction of Rs 1 lakh u/s 80C, Amin is comfortable paying income tax of Rs 4,000 in the first slab of 10 per cent on his effective taxable income of Rs 40,000.


Flat tax of 20% and 30%

A huge shock awaits Amin and millions of NRIs, in regard to taxation of their interest and investment income and capital gains earned in India, proposed to be treated under the draft Direct Tax Code as "income from special sources."

In 2011-12, on the same interest income of Rs 3 lakh, Amin will be required to pay a hefty tax of Rs 60,000 at the flat rate of 20 per cent, without being eligible to claim any basic exemption or other deduction, as provided under rule three of the First Schedule to the Code.

Moreover, all capital gains earned by a non-resident will attract a flat tax of 30 per cent, irrespective of the amount of capital gains. While a resident Indian will be required to pay tax of Rs 3.84 lakh on his taxable income of Rs 25 lakh, an NRI earning equivalent capital gains will be called upon to pay almost double tax of Rs 7.5 lakh.

Hair-raising drafting

New section 13 (2) provides that such ‘special income’ shall be computed in accordance with the provisions of the Ninth Schedule, the drafting of which is literally hair-raising. It provides that the amount of accrual or receipt shall be computed as the taxable income, and no loss, allowance or deduction shall be allowed, as the same shall be presumed to have been granted. The only exception in this regard, in respect of capital gains arising from the transfer of equity shares or units of equity oriented mutual fund chargeable to STT, is quite amusing, as it stands redundant in view of the proposal to abolish STT (a classic instance of incoherent drafting).

The draftsman does not seem to have realized the harsh implications. It means that if an NRI sells a capital asset purchased for Rs 10 lakh at Rs 30 lakh, he will be required to pay tax of Rs 9 lakh at 30 per cent on the gross sale consideration of Rs 30 lakh without any deduction even for the cost of acquisition of Rs 10 lakh (not to mention any benefit of indexation on the same).

Determination of residential status

The residential status of an individual under the Code is proposed to be determined as per the current norms. However, the status of "not ordinarily resident" (NOR) is proposed to be eliminated. Despite the above, Clause 24 of the Sixth Schedule has still provided for exemption in respect of interest earned on foreign currency deposits in the case of NOR. Poor drafting indeed!

The Code has proposed to retain the current exemptions availed by a non-resident in case of interest earned on NRE and FCNR deposits with banks.

Special exemption for returning NRIs

A useful exemption has been provided in case of income earned outside India, if it is not derived from a business controlled from India, in the financial year in which the returning NRI becomes an Indian resident and the immediately succeeding financial year. However, the benefit of the said exemption would be available, only if such individual was a non-resident for nine years immediately preceding the financial year in which he becomes a resident.

Wealth-tax liability for NRIs

Proposed Section 102 of the Code provides for wealth tax liability in the case of the value of all global assets of an individual or HUF. However, an exemption has been provided in case of the value of assets located outside India in case of an individual who is not a citizen of India or an individual or HUF not resident in India. Hence, while returning NRIs who are non-citizens will enjoy wealth-tax exemption for their overseas assets, NRIs with Indian citizenship becoming residents will attract wealth-tax liability on such assets held abroad.

Illogical exemption under wealth-tax

Talking about wealth tax, the Code prescribes an exemption in respect of any house or plot of land belonging to an individual or HUF, if it is acquired before April 1, 2000. It is difficult to understand the logic as to why this exemption has been denied in all cases where such immovable property is acquired after March 31, 2000!

Proposals That Will Hurt the Global Indian Sentiment

Flat Rate of Tax

20% flat tax on interest & other investment income
30% flat tax on all capital gains
Apart from 20% & 30% TDS on above, TDS at a baffling rate of 35% prescribed on all residual income

No Personal Exemption

No personal exemption or deduction allowed in computing the above income treated as ‘income from special sources’.

Weird Interpretation

Poor drafting leads to such a weird interpretation that transfer of a capital asset may attract 30% tax on gross sale consideration.

What Discrimination!

Ironical but true! Non-Indian sportspersons, say Ricky Ponting or Shoaib Akhtar, required to pay a concessional tax of 10% on their game, advertisement and column earnings in India, thus enjoying a more privileged tax status than our own sons of the soil living abroad