NRI Budget wish list: Four things Indians abroad are hoping for this year

Last year’s budget took a few steps to ease the difficulties faced by non-resident Indians (NRIs). Permission to NRIs to set up One Person Companies (OPCs) made it easier for them to do business in India. The tax benefits to affordable housing and the tax holiday to projects in this segment was also extended to NRIs. The government also relaxed the residency rules taking into account the lockdowns and flight bans imposed by several countries, which forced NRIs to stay back longer than intended.

Even so, several long standing demands remain unfulfilled.

Here are a few changes that NRIs will be looking forward to in next month’s budget.

Lenient tax witholding rules: NRIs get the short end of the stick when it comes to tax deduction at source (TDS). When they sell property below Rs 50 lakh, they have to pay 20% TDS on the capital gains if the property was held for more than two years. If the capital gains are short term (property held for less than two years), the TDS is as per the income tax slab of the individual. There is a surcharge on LTCG tax if the property is worth more than Rs 50 lakh, which pushes up the TDS rate. The surcharge increases with the price of the property. The TDS can be as high as 28.5% of the capital gains for properties worth over Rs 2 crore.

Similarly, while there is no TDS for resident investors in stocks and mutual funds, NRIs have to shell out TDS at the highest applicable tax rates. Short-term capital gains from equity-oriented investments are subject to a TDS of 15% plus applicable cess. Non-equity oriented investments (such as debt funds), bonds and fixed deposits are subject to a TDS of 30%. Rental income is also subjected to 30% TDS. NRIs are hoping that there is parity in the TDS rules for them and resident taxpayers.

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Basic exemption limit: Another major pain point for NRIs is that they cannot adjust their capital gains against the basic exemption limit of Rs 2.5 lakh. If the capital gains (both short-term and long-term) earned by a resident taxpayer are below the basic exemption limit, there is no tax liability. However, NRIs have to pay total tax on the capital gains even if their income is below Rs 2.5 lakh. Many NRIs want this anomaly to be fixed in the Budget.

Investing restrictions: Like any other taxpayer, NRIs are eligible for the Rs 1.5 lakh deduction under Section 80C and Rs 50,000 for investment in the NPS under Section 80CCD (1b). However, there are restrictions on where they can invest. They cannot invest in the Senior Citizens’ Saving Scheme, open a PPF account or buy NSCs and post office deposits. The Budget should remove these restrictions. In any case, the income earned from such investments is subject to normal tax and remittances from India are capped at $2,50,000 per individual per year under the Liberalised Remittance Scheme of the RBI.

Equal tax deductions: Some other benefits that NRIs may want are minor, yet important for some people. NRIs live abroad, they do have relatives and families back home. However, NRIs are not eligible for certain tax deductions, including medical treatment of disabled dependents (Sec 80DD), treatment of family members suffering from specified diseases (Sec 80DDB) and disability of self or dependent (Sec 80U). Given that many NRIs are taking care of sick and infirm dependents, these benefits should be extended to them as well.