RIYADH, 11 December 2004 — The Indian government has made millions of its residents in the Gulf happy with its decision to completely withdraw the income tax on non-resident bank deposit interests for the fiscal year 2005-2006. This comes in the wake of strong lobbying by several non-resident Indian (NRI) groups.
The gesture benefits the Gulf Indians in particular as they make significant contribution to India’s foreign currency reserves but earn less than $300 per month on an average. Earlier, the government had withdrawn the proposed tax on interest accrued through deposits made by Indian expatriates for the fiscal year 2004-05. The contribution of Gulf NRIs is to the extent of 75 percent of the total money remitted to India by the overseas Indians every year!
This year has been particularly bad for the NRIs since the rupee has moved sharply against the US dollar as India’s economy continues to be buoyant. This coupled with rising inflation eroded the NRI corpus considerably. To cap it all, the falling bank interest rates on the deposits were not helping the cause of overseas Indians. Amidst this, the threat of possible income tax on their deposits had made matters worse.
“I am pretty happy over this government’s decision to do away with the income tax”, says a Riyadh based Indian. He can now look forward to sending his savings to the Indian banks with renewed confidence. However, there is a catch; the government might impose the tax from the fiscal year 2006-2007. But that is still some distance away and the NRIs feel that there is enough time left to pursue the government to give up the taxation issue altogether.
The NRIs had never paid tax on their deposits made with Indian banks either in rupee or any other foreign currency. Earlier this year, the Reserve Bank of India had made a proposal to tax the income accrued from deposits made by NRIs through Non Resident External Rupee Account (NRE), Foreign Currency Non-Resident Account (FCNR) and RFC. The RFC is foreign currency bank account for those returning to India for permanent settlement. Based on RBI’s recommendation, the new government in Delhi told the NRIs that the interest earned on their deposits would be subject to TDS (tax deducted at source) with effect from Sept. 1, 2004.
