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Vimala Vasan

Abu Dhabi , May 27

A NRI welfare organisation has appealed to the Prime Minister, Dr Manmohan Singh, not to tax interest income on NRI deposits, while some bankers and exchange house officials here say that the recent RBI proposal on taxing NRI deposits could wait till full capital account convertibility is implemented.

The Pravasi Bandhu Welfare Organisation has, in a letter to the Prime Minister, copies of which have been sent to the Finance Minister, Mr P. Chidambaram, and the RBI Governor, Dr Y.V. Reddy, urged the Government not to implement the RBI proposal in the interest of the low and middle income group NRI workers in the Gulf who remit a substantial portion of their income back home.

"Non-residents Indians, mainly Indian workers from GCC (Gulf Cooperation Council) countries are one of the major sources of foreign currency reserves in India. Last year, NRIs remitted a total of $20 billion, out of that 75 per cent are from Indians working in the GCC countries. During the foreign currency crisis, NRIs extended their full support to the country by investing in India Development Bonds, Resurgent India Bonds and India Millennium Deposits," Mr K.V. Shamsudheen, Chairman of the Trust, said in the appeal.

He pointed out that following regular investments in such deposits, the country had very comfortable foreign currency reserves to the tune of $120 billion.

"Seeing the current situation, the RBI is proposing to tax interest income on NRI deposits. On behalf of the non-resident Indians, the Pravasi Bandhu Welfare Trust urges the Indian Government not to tax interest income on NRI deposits. We are not expecting this kind of an unfriendly approach towards the NRI community," he said in the appeal.

The rust is a charitable organisation that is making all efforts to use NRI resources for the benefit of the country. "We are teaching middle-income non-resident Indians and their dependents how to control expenditure and save maximum and invest properly for the creation of assets for retirement. We motivate people for the optimum utilisation of the work culture, experience, expertise, know-how and business contacts gained from abroad when they return home," Mr Shamsudheen said.

Meanwhile, Mr Sudhir Shetty, General Manager, UAE Exchange Centre, told Business Line that the RBI proposal could be implemented after India goes in for full capital account convertibility. "This talk of full convertibility has been going on for many years. When it is implemented, taxing NRI interest income would be a better idea," he said. Though the other factors of the Indian economy are good, fiscal deficit is still not yet under control, so the process of full convertibility could take some time. "More removal of controls and widening the scope of fiscal reforms should be done in a phased manner till we adopt full convertibility," he said.

Mr Shetty said that taxing NRI deposits, if implemented, would deter a large section of NRIs from investing in India, as interest rates are already very low. "The main attraction now is the slightly better interest rates offered in India plus the non-existence of taxes." A senior bank official in Abu Dhabi said that it was unlikely that in the current political context, the proposal to tax interest income on NRI deposits would be implemented.

"It would affect NRI investment patterns if it is implemented, as currently, Indian rates are still more attractive that those in other countries. From the economic point of view, it appears that the proposal may be in tune with world developments. NRIs have benefited in the past due to better interest rates and no taxes, and the RBI proposal may have been made keeping in mind subsequent developments and the slide in the Libor rates."

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