TRIVANDRUM, 11 August 2004 — Kerala will float high-yield development bonds specifically targeting its huge NRI population which is hit hard by steadily falling interest rates and the newly imposed tax on interest earned from NRE deposits.
The state government is finalizing the nature, volume and periodicity of the NRI Development Bond that would carry reasonable interest rates, said Information and Parliamentary Affairs Minister M. M. Hassan who is also in charge of NRI affairs.
Chief Minister A.K. Antony will formally launch the issue at the Global Non-Resident Keralites (NRK) Meet in Dubai ahead of Ramadan which will be attended by federal NRI Minister Jagdish Tytler and Minister of State for External Affairs E. Ahamed.
The bonds would be a great relief for the NRIs as it would ensure interest rates between six and eight percent.
The state will also benefit largely from the recurring investments of the earnings from the bond unlike the foreign institutional investors and banks that repatriate their profits.
According to Dr. Ravi Raman, research fellow at the Center for Development Studies here who first suggested borrowing from NRIs instead of going for the high-cost loans offered by the World Bank and Asian Development Bank, the present Congress-led state government issued development bonds 18 times after assuming power in May 2001 until February this year.
Of the 39.3414 billion rupees mobilized, around 73 percent was spent on financing five-year plans and development activities. In effect, the major share was spent on salaries and pensions and to meet other revenue expenditure.
Allaying popular fears of diverting funds, Hassan said the NRI bonds would be floated for purely financing high-yielding long-term infrastructural projects like airports, seaports and highways.
No money would be spent on revenue expenditure like salaries and pensions of government employees.
“Kerala receives 600 million rupees in remittances everyday. The state received 1 trillion rupees during the past 25 years since the migration to the Gulf started and today, we have an NRI bank balance of 310 billion rupees.,” Gulf-based investment adviser and Pravasi Bandhu Welfare Trust Chairman K. V. Shamsudheen said after submitting a representation to Hassan.
NRI Tax Clarified
Meanwhile, banking sources here said any income above 50,000 rupees generated in India by NRIs will be taxed according to slabs applicable under the new section 88D of the tax laws.
The exemption of up to 100,000 rupees available under this section to residents is not available to NRIs.
NRIs can apply for TDS (Tax Deducted at Source) at a lower rate of tax or complete exemption in Form 15H only after obtaining a certificate from the assessing officer in his hometown in India by convincing him of his real income and the need to deduct tax at a lower rate or a total exemption.
For income generated on NRE deposits, only the interest due from Sept. 1, 2004 is taxable and the interest income due up to Aug. 31 is not taxable.
NRIs who want to avoid the tax, should maintain deposits in India in rupees that would yield less than 50,000 rupees in annual investment income.
Resident foreign currency deposits are also taxable for the income earned.
Returning Indians are the worst affected as they have to pay tax on income earned inside and outside India after return.
