especially when the jerks in the finance ministry mess up.
Check the following article (http://www.samachar.com/openbin/red...ww.deccanherald.com/deccanherald/mar08/i5.asp).
When Jaswant sneezes, NRIS catch cold
From L K Sharma DH NEWS SERVICE WASHINGTON, March 7
Once, when London shook, India was hit. Today, when New Delhi sneezes, NRIs catch cold.
The official organisers of the NRI Diwas in India have a fresh assignment of undoing the damage done by Finance Minister Jaswant Singh on Budget day.
The Indian embassy in Washington will be flooded with e-mails about the new budget’s detrimental effects on NRIs thinking of resettling in India.
Those protesting want the proposed “disturbing change” in the Indian tax law to be scrapped. The lesson is that before the Indian budget is prepared, the finance minister must receive NRI delegations!
“This change is extremely detrimental to non-resident Indians in general, software professionals and the software industry in particular, and multi-national companies wishing to locate in India, says Lakshmi Anand, a financial analyst whose husband is a computer science professor.
She says, ”We are shocked at this extremely negative, retrograde, anti-NRI, anti-FDI provision, that comes at a time when the government claims it is trying to strengthen ties with the Indian diaspora, has held a ‘Pravasi Bharatiya Divas’ and is proposing to introduce dual citizenship. The provision could have adverse consequences for the software and knowledge-based industry in India.”
Lakshmi Anand says few commentators on the budget in India have noticed this issue, because it is an obscure item tucked away in the fine print. But it contains a severe sting in the tail for NRIs, expatriates in India and those who have returned to India from abroad. This is the proposal to alter the definition of “Not Ordinarily Resident” to a) reduce the number of eligible persons to a minuscule fraction of returning residents, and b) curtail the period of tax benefit drastically.
Those protesting against the change demand that the finance minister restore the legal status quo ante that prevailed all these years — namely a 9-year transition during which a returning Indian’s foreign income would not be taxed in India. “No one is asking for a new concession, merely that a decades-old provision be retained.”
Right from 1961 when the current Income Tax Act was enacted and even earlier under the 1922 Act, residency status has been of three kinds: Non-resident, Resident and Resident but Not Ordinarily Resident (RNOR). The last category is a transitional status lasting for some years, for people who have come back to India after a period of non-residency. For those with RNOR status, only income earned in India is liable to Indian income tax. Thus so long as an individual is in this RNOR status, his or her income accruing outside India will not be taxable in India.
Apparently, one of the reasons this status was introduced in pre-1961 India was that there were many companies and managing agencies which employed British expatriates. These people would come to India, work for a few years and then return to Britain but would not be willing to come back if their entire British income was subject to Indian income tax.
The precise definition of the RNOR status is given in Section 6 of the Income Tax Act 1961. Without getting into legalese, the section has been taken to mean that a person who has been non-resident for more than two years continuously would on return be entitled to RNOR status for 9 years and thus for 9 years would be taxable in India only on income accruing in India. This year, in the Finance Bill, the Finance Minister has sought to amend the law in a way that will hit the NRIs.
The change that Jaswant Singh is bringing in will mean that any income they accrue abroad — including in their Individual Retirement Accounts / 401 K savings — will now be fully liable to Indian taxation from the year of their return. Instead of a 9 year transition, which afforded them time to try out new ventures without risking their retirement savings, they will now have no transition at all.
This will be disastrous for the smooth flexibility in relocation and mobility that is so critical to the Indian software industry’s success. From now on, software professionals returning from the US to India will have to think twice: they would be liable for tax of approximately 33 per cent on the income earned in their US pension accounts and on any other savings they have there!
As for additional tax revenue, this is likely to be negligible in the short run because the number of people in RNOR status is very small relative to the total number of assessees. The change will induce many not to settle in India. Those who still come back will resort to legal methods of avoidance such as offshore trusts, so that the only real beneficiary will be lawyers and banks in western countries who specialise in these devices. In the long run, when considering the supply side effect (reduction in numbers re-settling), the revenue impact is likely to be negative.
Paradoxically, the 9-year RNOR benefit existed throughout the long period when India had a socialistic policy, discouraged MNCs and had severe restrictions on investments by returning Indians, Lakshmi Anand points out.
Check the following article (http://www.samachar.com/openbin/red...ww.deccanherald.com/deccanherald/mar08/i5.asp).
When Jaswant sneezes, NRIS catch cold
From L K Sharma DH NEWS SERVICE WASHINGTON, March 7
Once, when London shook, India was hit. Today, when New Delhi sneezes, NRIs catch cold.
The official organisers of the NRI Diwas in India have a fresh assignment of undoing the damage done by Finance Minister Jaswant Singh on Budget day.
The Indian embassy in Washington will be flooded with e-mails about the new budget’s detrimental effects on NRIs thinking of resettling in India.
Those protesting want the proposed “disturbing change” in the Indian tax law to be scrapped. The lesson is that before the Indian budget is prepared, the finance minister must receive NRI delegations!
“This change is extremely detrimental to non-resident Indians in general, software professionals and the software industry in particular, and multi-national companies wishing to locate in India, says Lakshmi Anand, a financial analyst whose husband is a computer science professor.
She says, ”We are shocked at this extremely negative, retrograde, anti-NRI, anti-FDI provision, that comes at a time when the government claims it is trying to strengthen ties with the Indian diaspora, has held a ‘Pravasi Bharatiya Divas’ and is proposing to introduce dual citizenship. The provision could have adverse consequences for the software and knowledge-based industry in India.”
Lakshmi Anand says few commentators on the budget in India have noticed this issue, because it is an obscure item tucked away in the fine print. But it contains a severe sting in the tail for NRIs, expatriates in India and those who have returned to India from abroad. This is the proposal to alter the definition of “Not Ordinarily Resident” to a) reduce the number of eligible persons to a minuscule fraction of returning residents, and b) curtail the period of tax benefit drastically.
Those protesting against the change demand that the finance minister restore the legal status quo ante that prevailed all these years — namely a 9-year transition during which a returning Indian’s foreign income would not be taxed in India. “No one is asking for a new concession, merely that a decades-old provision be retained.”
Right from 1961 when the current Income Tax Act was enacted and even earlier under the 1922 Act, residency status has been of three kinds: Non-resident, Resident and Resident but Not Ordinarily Resident (RNOR). The last category is a transitional status lasting for some years, for people who have come back to India after a period of non-residency. For those with RNOR status, only income earned in India is liable to Indian income tax. Thus so long as an individual is in this RNOR status, his or her income accruing outside India will not be taxable in India.
Apparently, one of the reasons this status was introduced in pre-1961 India was that there were many companies and managing agencies which employed British expatriates. These people would come to India, work for a few years and then return to Britain but would not be willing to come back if their entire British income was subject to Indian income tax.
The precise definition of the RNOR status is given in Section 6 of the Income Tax Act 1961. Without getting into legalese, the section has been taken to mean that a person who has been non-resident for more than two years continuously would on return be entitled to RNOR status for 9 years and thus for 9 years would be taxable in India only on income accruing in India. This year, in the Finance Bill, the Finance Minister has sought to amend the law in a way that will hit the NRIs.
The change that Jaswant Singh is bringing in will mean that any income they accrue abroad — including in their Individual Retirement Accounts / 401 K savings — will now be fully liable to Indian taxation from the year of their return. Instead of a 9 year transition, which afforded them time to try out new ventures without risking their retirement savings, they will now have no transition at all.
This will be disastrous for the smooth flexibility in relocation and mobility that is so critical to the Indian software industry’s success. From now on, software professionals returning from the US to India will have to think twice: they would be liable for tax of approximately 33 per cent on the income earned in their US pension accounts and on any other savings they have there!
As for additional tax revenue, this is likely to be negligible in the short run because the number of people in RNOR status is very small relative to the total number of assessees. The change will induce many not to settle in India. Those who still come back will resort to legal methods of avoidance such as offshore trusts, so that the only real beneficiary will be lawyers and banks in western countries who specialise in these devices. In the long run, when considering the supply side effect (reduction in numbers re-settling), the revenue impact is likely to be negative.
Paradoxically, the 9-year RNOR benefit existed throughout the long period when India had a socialistic policy, discouraged MNCs and had severe restrictions on investments by returning Indians, Lakshmi Anand points out.