The Hindu Business Line : Gulf NRIs urge withdrawal of proposal to tax deposits

GULF non-resident Indians (NRIs) are urging the Indian Government to completely withdraw the tax proposal on NRE deposits, which has been postponed to April 2005, as it may drive away investors and cause losses for low and middle-income expatriates.

The proposal made in the Budget, was to come into effect from September 1, but the postponement till April next year offers time for depositors to take action to minimise the impact of the tax on existing deposits.

NRIs in the UAE are protesting against what they term `compulsory' deduction of taxes to the tune of 30 per cent even from expatriates who do not come under the taxable income category.

The UAE-based Pravasi Bandhu Charitable Trust has been calling for a global campaign against the proposed tax. Mr K.V. Shamsudheen, Chairman of the trust, told Business Line, "The tax will be deducted at source irrespective of the expatriate's income. Surveys by our trust in banks in Kerala have shown that close to 95 per cent of the Gulf NRIs do not have big deposits to the tune of Rs 0.21 crore or more that will make them liable to pay tax on interest earned on such deposits. However, this huge group of NRIs will also be susceptible to tax cuts under the proposed tax regime, which is unjustified."

Mr Shamsudheen urged the Finance Minister to visit the Gulf countries to get a clear picture before imposing the tax.

NRIs here say filing tax returns or seeking repayment in the event of tax cuts on non-taxable categories of deposits could be problematic for NRIs as well as the Indian tax authorities due to heavy paperwork. The former may even avoid these hassles leading to losses or penalisation at a later stage.

Banks do not have a clear idea on what methodology will be adopted to implement the tax proposal, leaving investors in the dark on the implications of the tax or the action they can take to avoid problems.

A senior official with the Abu Dhabi Commercial Bank said that some NRIs were making premature encashment of NRE deposits to avoid the tax on interest on existing deposits. "Some NRI investors, particularly from the high networth category, have switched to offshore banking units offered by some Indian banks as the interest rates are more attractive. But middle-income expatriates may still go for to NRE and FCNR deposits, as comfort levels are higher. It is therefore likely that they may be hit by the new tax proposal."

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Gulf NRIs urge withdrawal of proposal to tax deposits

Yet, another one!