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Wednesday, Dec 08, 2004

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India Inc demands uniform tax rate for NRIs' income

Richa Mishra

New Delhi , Dec. 7

INDIA Inc is pitching for a uniform tax rate for all types of incomes earned by non-resident Indians (NRIs). This, in effect, would lead to Indian entrepreneurs bringing back home their foreign exchange income earned outside India, according to the Federation of Indian Chambers of Commerce and Industry (FICCI).

Currently, the Income-Tax Act provides for taxation at varying rates depending upon the nature of income to be taxed. Examples of such income include income earned from royalties, fees for technical services, income from GDRs, dividends and interest. The provisions have become more complex and need to be simplified, chamber sources said.

Further, the tax rate of 20 per cent under the domestic tax laws is unrealistic as it assumes a profit margin of over 60 per cent of revenue, they said. All the provisions for taxation of non-residents under the I-T Act should be consolidated in such a way that a uniform tax rate of 10 per cent should be provided in respect of all types of income earned by the NRIs, whether by way of royalties, fees for technical services, dividends, interest and capital gains, the chamber noted.

"This would be in line with many tax treaties that India has signed. For example, the treaties signed with Ireland, Sweden and Germany provide for a lower withholding tax rate of 10 per cent," FICCI sources told Business Line.

The chamber proposes to recommend that the provision pertaining to rate of taxation on royalties or fee for technical services received by NRIs be amended to clarify that all payments in accordance with FEMA under any agreement be taxed at the preferential rate specified under the Act. Further, the reference to Central Government approval and industrial policy in the Act may be omitted.

Alternatively, payments under non-approved agreements may be subject to slightly higher rate of tax on a gross basis.

Section 115A of the Act provides that royalties or fee for technical services received by non-residents be taxed at a concessional rate of 20 per cent only if the agreement under which these are received is approved by the Central Government or relate to a matter that is covered under the Industrial Policy. In other cases, the normal rates of taxation apply.

FICCI has also suggested that the provisions relating to tax audit and minimum alternate tax (MAT) may be clarified to the extent that it would not be applicable to those non-residents who do not have a permanent establishment in India where they are taxed on presumptive or gross basis under the existing Act.

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