FM leaves the NRIs and the rich poorer

MUMBAI: Indians in Dubai and other tax havens who do not pay income tax, rich local investors and people drawing fat salaries will have to fork out more tax. While a person with an annual salary of Rs 15 lakh can save up to Rs 78,000 under a new optional regime of ‘lower tax without incentives’, professionals who have settled abroad and members of business families who escape tax on overseas income by getting an ‘NRI’ tag will find the going tougher.And while the new regime may lure many in the Rs 5-15 lakh bracket, most with higher salaries may prefer paying old tax rates and continue to claim deductions like rent allowance and mediclaim premium to reduce taxable income.For years, well-heeled Indians have been carefully dividing time in India and abroad to lower tax outgo. A resident could attain NRI status — and pay no tax on foreign income — by staying abroad for more than 182 days. From now on, they will have to spend at least 240 days abroad to be an NRI. Armed with this rule, the taxman will go after these ‘stateless persons’ — individuals who arrange their affairs in such a way that they pay no tax in any country.“Crew of merchant vessels, non-domiciled Indians in the UK who have no tax liability there, and Indians employed in Singapore having offshore income in Hong Kong will now have to pay tax,” said Mitil Chokshi, partner at Chokshi & Chokshi, a tax consultancy.Need to Examine Options“It’s harsh and some NRIs may probably surrender their citizenship,” said Mitil Chokshi.Faced with a strident tax office and harsh laws against money laundering and benami deals, many Indian businessmen have relocated to other jurisdictions with easier tax laws. While some gave up their Indian passports, most chose to run businesses in India as NRIs (while being based in tax-friendly countries).Even as the government promised to respect wealth creators, it continued to intensify moves to tax the rich. “For instance, the withdrawal of dividend distribution tax (DDT) will hurt big local investors as well as non-residents who earn large dividend income as the said income will be taxed at the appropriate rate. If a non-resident has to take advantage of the lower tax as provided in the treaty between that country and India, she has to meet the conditions of ‘principal purpose test’,” said senior chartered accountant Dilip Lakhani. This would mean explaining to the Indian tax department the reasons to invest from that country. “So, if total income together with dividend earnings cross Rs 50 lakh, such assessees will have to disclose their assets in the tax return,” he said.

from Economic Times https://ift.tt/3b4dCnG