Amendments To Finance Bill Provide A Breather To NRIs, More Room To Hike Duty On Fuel

India won't tax non-resident Indians for domestic income of up to Rs 15 lakh.

The government introduced the threshold for taxing income of NRIs if the person qualifies as a deemed resident by staying in India for 120 days or more. There was no such monetary threshold when the changes were proposed in the Budget. This wouldn't include income from foreign sources.

“The liability to pay tax on such deemed resident will be only in respect of business controlled in India or profession set up in India and that too when such income exceeds the threshold of Rs 15 lakh, explained Rakesh Nangia, chairman of Nangia Andersen Consulting.

In the budget presented on Feb. 1, Finance Minister Nirmala Sitharaman had revised the criteria and duration for determining the taxability of persons based on their residential status. A person would be considered a resident in India if he or she is in country for 120 days, down from earlier 180 days.

NRIs will have to be cautious if they overrun these conditions , and will have to comply by the norms here, and pay tax, said Neeru Ahuja, a partner at Deloitte India.

The amendments also lowered the tax collected at source rate to 0.5 percent from 5 percent for transfer of money overseas through Liberalised Remittance Scheme if the amount is borrowed from financial institutions to fund education.

According to the amendments, cash withdrawals of Rs 20 lakh to Rs 1 crore would be liable for 2 percent tax deductible at source if the person has not filed income tax return for three preceding years. For cash withdrawals over Rs 1 crore, persons who have not filed returns in the preceding three years would be liable for 5 percent TDS.

“Section 194N was introduced to enable TDS provisions on withdrawals of amount aggregating to Rs 1 crore or more from one or more accounts held in banks/ post-offices/ co-operative banks,” said Nangia. “This has now been amended with effect from July 1, 2020, he said, adding that the government is trying to tighten the noose on income tax evaders having large bank balances.

The government extended the tax exemption earlier proposed for sovereign wealth funds to global pension funds as well. In the budget for 2020-21, the government had announced 100 percent tax exemption on long-term capital gains, dividend and interest on investment made in infrastructure by sovereign wealth funds. This was applicable for investments made on or before March 2024, and held for a minimum period of three years.

Two options have been proposed to tax REITs and InvITs:

• At a concessional rate of 25 percent with no exemption for dividend income in the hands of the investors.
• At the existing rate of 34.94 percent with exemption for dividend income.

The pre-corporate tax cut regime has been restored for REITs and InvITs.

A cap on surcharge of 15 percent has also been imposed on dividend income. This wouldn't lead to unfair tax burden for dividend earners who are in lower tax brackets as well as ensure that tax burden on dividend income of high net-worth individuals doesn't increase, a government official told BloombergQuint on the condition of anonymity.

Government Creates Room To Increase Duty On Fuel

The government has raised the cap on special additional excise duty on petrol and diesel to Rs 18 and Rs 12 per litre, respectively. The earlier limit for special additional excise duty was Rs 10 per litre for petrol and Rs 4 per litre for diesel.

“With the increased powers, the government can raise the levy to 18 per litre on petrol and 12 per litre on diesel,” said Abhishek Jain, a partner at EY India.

The government also increased the threshold for imposing road and infrastructure cess to Rs 18 per litre from Rs 10 earlier. “With reducing prices of crude, this change could incline to an expectation of the government increasing duties on petrol and diesel in the short term for increasing its revenues,” Jain said.

On March 14, the centre had increased the excise duty and cess on petrol and diesel by Rs 3 a litre. Every rupee hike in excise duty helps the government earn Rs 13,000-14,000 crore annually.