On July 5, 2019, Nirmala Sitharaman, India’s Finance Minister presented her maiden Union Budget in Indian Parliament. She did not disappoint either the Indian residents or the NRI diaspora.
It was a decent budget focused on boosting infrastructure investment in India. Emphasis was made on enhancing transparency in taxation processes and procedures by introducing initiatives such as the faceless assessment system and levy of TDS on cash payments above the threshold limit. Other initiatives which would be music to the ears of NRIs would be the renewed emphasis on Digital India and Digital Payments, large scale initiatives in infrastructure with big developments of airports and railway systems.
Here are speciﬁc NRI relevant features of the Indian Union Budget 2019:
- One important feature of the budget which merits attention from NRIs is the increased personal income tax rate due to an increase in the surcharge for very rich assesses. Eﬀective tax rates for incomes between INR 2 crores to INR 5 crores (USD 292,000 to USD 730,000) will go up to 39% and for incomes above 5 crores, it will reach as high as almost 43%. While this may not aﬀect all NRIs, there would be some which will feel this pinch of higher tax rates.
- Other interesting feature of the budget which impacts NRIs is the changes in gift tax provisions. Any gift received by the NRI on or after July 5, 2019, which is more than INR 50,000 (USD 730) received from any resident Indian (other than a speciﬁed relative) would be taxable in the hands of the NRI. Any NRI receiving such a gift would be obligated to disclose this gift as an Income in India and pay tax according to personal tax rate slabs. Till July 5, 2019, thanks to a tax code loophole, such gifts received by NRIs could escape taxation. This change is expected to bring some “benami” immovable property transactions into the tax net and also place controls over inappropriate transfers of money or property.
- The provisions contained in the new Budget have extended the coverage of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, to retrospectively include non-resident Indians under the Act. Government of India plans to take action and tax those assesses who were residents when they created undisclosed assets outside India and then later migrated to become NRIs. Again this move may not impact many NRIs, but for some these provisions may prove to be a challenge.
- One change which will bring relief for many assesses is the change in procedure to claim lower or nil tax deduction at source from income tax assessing oﬃcers. This process has now been made digital instead of the cumbersome manual process.
- As many NRIs are already aware, any long-term capital gains arising on the sale of a residential property, are exempt from Indian Income tax, provided the capital gains are reinvested in one residential house property. As a welcome move, now the Budget has a provision that will extend the beneﬁt of re-investment to two residential properties. However, it also imposes a beneﬁt limit of INR 2 crores (USD 292,000) and that it can be availed only once in the tax payer’s lifetime. This would be very good news for NRIs who may have signiﬁcant inherited assets in India.
- One more welcome move is the tax exemption of notional rent. Currently, many NRIs enjoy exemption from tax on notional rent on one self-occupied house property. This Budget has proposed to extend this tax exemption to two self-occupied house properties. This means one can now own upto two residential house properties without having to pay any Income Tax on notional rent. Encouraging NRI’s to buy a second investment property seems to be intent behind this move.
- This Budget also increases the threshold limit for tax deducted at source on rental income from INR 180,000 to INR 240,000. (USD 2,626 to USD 3,500). This increase in the TDS threshold should encourage more NRIs to invest in property in India.
- The Budget oﬀers an income tax waiver on the amount distributed on or after the 1st day of September 2019, by a Mutual Fund, whose all unit holders are NRIs. While currently there are no mutual fund schemes where all unit holders are NRIs. This move may provide the motivation for Indian mutual funds to launch relevant schemes focused on NRIs
- NRIs returning back to India are compelled to wait for 180 days before seeking an Aadhaar Card. This budget oﬀers relief in this respect and now NRIs can apply for Aadhaar on arrival.
- Interest earned on Rupee-denominated Bonds (RDB) taken between 17th September 2018 and 31st March 2019 has been exempted from income tax.
- According to the new changes announced in the Budget the NRI Portfolio Investment (PIS) will be merged with Foreign Portfolio Investment (FPI). Simpliﬁcation of documentation processes and an increase in statutory FPI investment limits is on the cards. This should give a signiﬁcant boost to NRI investments in ﬂoating stock as the 24% limit may no longer prove to be restrictive.
- The Budget also refers to a proposed event titled the “Annual Global Investors Meet”. This could bring further impetus to NRI Investments in India.
Overall, this 2019 Union Budget presented in the ﬁrst year of the second term of the Narendra Modi government presents exciting possibilities and pathways for attaining the goal of a USD 5 trillion economy with better tax compliances and enhanced ﬁscal discipline.
[Nilesh Shah is an Investor, based in silicon valley. These are the author’s personal views. This note is not intended to be Investment or taxation advice. Investors and tax payers are advised to seek inputs from licensed CPAs, Attorneys, Securities broker-dealers and other competent professionals.]