5% Tax on NRIs: The Hoax Emails Series – Part III

Continuing the series on Hoax Emails (read Part 1 and Part 2 here). Late last week Ashutosh sent me this email which had all the hallmarks of a typical “hoax email”: Lack of references, no specifics, no details and hardly any links. The subject of the email was “5% Tax On Foreign Income For All NRIs“. Read on:

*** Hoax Email Begins ***

NEW DELHI – The Government of India announced April 22 imposition of a flat 5% tax on all NRIs over their world-wide income.

Income that is already taxed in India has been kept out of the purview to avoid double taxation. No double taxation benefits would be available for this 5% tax, meaning even if you are paying tax on your income in a country with which India has double taxation agreement, the benefit would not be allowed against this 5% tax.

All those Indians who are holding Indian Passports and have been out of the country for more than 180 days during the year are under this requirement. Income proof would have to be submitted in form of employer certificates, foreign tax filings etc.

The Indian government is also coordinating with Australia, Europe, America, UAE and other countries on collecting Income data for its citizens as part of data sharing initiative on terror prevention measures.

This has been hailed as bringing in compulsory participation in development of India from Non Resident Indians.. This means NRIs can no more just continue to retain their Indian citizenship without paying taxes in India. Though it may not be favorable in view of the NRIs who already bring substantial foreign exchange in form of remittances and investments.

This is bound to cause a lot of heart burn for the Indian community residing outside.This is expected to generate ~10 Billion INR tax collection for the government in the year 2009-10..

For more information on this rule, tax filings and forms visit http://www.incometaxindia.gov.in/

*** End ***

*** The Reality ***

Courtesy a comment on this site by Rudy:

I was surprised to see this email, well written and generally uses tax lingo. My first reaction was that it was a April fool joke.

Then being a CA I did some research to find out how to calculate my taxable income, deductions etc.

• Like elsewhere salaried people – the mango man (i.e. aam aadmi) is usually screwed because all income is in black and white (i.e. employment contract usually gives all the info).
• Countries like Middle East, Cayman, Bermuda, there are no tax returns etc. so if one has a business abroad I tried to locate how would the income taxes be levied and if there were losses would the Govt. of India refund some of the taxes.
• What about investment income and income from house rent?
• What exchange rate to use – closing rate, average rate etc?
• Is there a minimum amount i.e. Rs. 100,000 or a dollar/euro/yen/gbp equivalent?

What is mysterious is that there was no mention if the gross income is taxable or net income.

I can confirm it is an April fool joke for the following reasons:
• Currently only one country taxes its citizens on its worldwide income – the US. But then there are privileges for holding a US passport i.e. no visa requirements for almost any country, access to US embassies worldwide, diplomatic access etc. Now a lot of Indians would like a US passport but they would have to pay taxes on their worldwide income. Given that the benefits outweigh the taxes people usually don’t mind shelling out a few dollars.
• Usually the government has to follow a protocol. They have to introduce a tax bill or a proposal (usually during the budget), debate on it and then pass it in both houses of parliament. Once the President gives their accent only then it becomes law. I did not see any mention of this bill in the interim budget given by Mr. Pranab Mukherjee.
• Also, usually income taxes (direct taxes) bill is usually introduced in February (i.e. one month before the effective date April 1), so that the individuals can effectively plan their income to minimize taxes.
• If some of the questions above have to be answered there will have to be a whole new manual in the Income tax Act.
• Besides the NRI community should also be informed of these pronouncements na? How would the information be dispersed to the NRIs?
• Considering I am in several CA email groups and not one mentioned this was a bit strange. Such an important pronouncement and no discussion in the CA circles?
• Also did some research on google to confirm… the first 3 hits confirmed my thoughts.

http://shahidpages.wordpress.com/2009/04/06/tax-for-nri-in-india/
http://fiqbal.com/blog/2009/04/beware-of-email-hoax-5-percent-income-tax-on-nris/
http://www.investmentyogi.com/cs/blogs/taxes/archive/2009/04/07/tax-for-the-nri.aspx

There are lots more reasons but I will stop here.

Please pass this on to the worried NRIs you may have forwarded this message to.

Cheers,
Rudy D’Cunha, ACA, FRM, CFSA

***

There is somre more reassuring information here:

Rajendra Chauhan
Managing Partner
This news is not supported by any link to circular, notification issued by The Income Tax Deptt of India, and therefore can not be relied upon. As of my information the ITD has not issued any such kind of notification till date.

***

Related Posts:

On John Howard, LPG Cylinders and Hoax Emails – Part 1

On John Howard, Faulty Cylinders and Hoax Emails – Part II