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Budget Did Not Keep the NRIs in Mind but Still Something to be Happy about
Friday, March 14, 2008

Have NRIs interest been ignored in the latest Indian budget? Since the government is all out to get votes for the general election next year, special concessions for NRIs were perhaps not a priority after all. The focus was clearly on farmers and the common man. Another factor could be the high inflows of foreign funds invested in stocks and India's foreign exchange reserves crossing the $300 billion watermark.

NRIs are basically interested in higher returns on their cash deposits and investments in stocks and mutual funds, less regulation for joint venture partnerships and more regulation and transparency for property ownership. But the 'Jai Kisan' budget did not directly address these concerns.

Despite these factors, NRIs have something to cheer about in the budget. For a start, the NRIs who pay income tax in India have to pay less as the income limits for men, women and senior citizens have gone up. The highest rate of tax of 30 per cent will now be on incomes of over Rs 0.05 crore as against Rs 0.025 crore earlier. This means more cash in hand to spend or invest in India. Earlier, NRIs were hassled with regulations for transferring money abroad from India, low customs allowance for bringing in gifts and other goods or restrictions on property ownership. These issues do not bother NRIs any more since India started to open its economy.

By increasing the short term capital gains tax from 10 per cent to 15 per cent, it is clear that Finance Minister P. Chidambaram wants investors - Indians, foreigners and NRIs - to stay invested for longer periods than one year. This limits the speculative investors. The recent introduction of making the PAN (Personal Account Number for Income Tax) and proof of address compulsory for all investors tackles unaccounted funds invested. NRIs are apprehensive since proof of overseas address is now compulsory. It has to be attested by their local authority for this one-time procedure.

New norms for investing in mutual funds are also being streamlined. The offer documents for mutual funds will be simplified to reduce the costs and time involved in preparing and filing offer documents.

The Indian stock market maintained its bull run at the start of this year but turned bearish in February due to global and local developments. After topping the 20,000-mark, it plummeted to below 16,000. Observers say it is a correction. Shrewd investors are picking up bargains. Safe players are wary. Indian stocks are good buys in the current bearish run as the order books of Indian companies are full for the next two or three years, the economy is growing at over eight per cent and domestic demand is high with marginal reliance on exports. So despite the US slowdown, investing in Indian stocks remains worthwhile. The name of the game is 'stay invested'.

NRIs earning interest on non-resident ordinary (NRO) deposits may be taxed at 20 per cent instead of 30 per cent, reported The Economic Times after the budget. NRO deposits are the rupee deposits of NRIs from the money they earn and save in India. These earning deposits could be in the form of salary paid in India, rent received in India, dividend or transfer from local accounts. The interest on this account can be sent abroad after paying due taxes in India. Now the tax on this interest may be reduced by 10 per cent, according to the Authority for Advance Ruling, a body for tax disputes. For many years, NRIs have been requesting that this interest should be lowered to 20 per cent - the rate at which interest from foreign currency accounts are taxed. NRIs have been arguing that since NRO deposits are also convertible foreign exchange, these deposits are similar to foreign exchange assets and should be taxed at the same rate. These rulings usually act as guidelines for tax officers and taxpayers and thus the banks are most likely to implement them in the near future.



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