Tax time for NRIs with NRE accounts

nritaxThe rule specifies that investments made from NRE (non-resident external) accounts are fully repatriable and Interest on NRE accounts are also tax-free. NRIs happily responded with remittances of a whopping $48 billion last year.

Here’s the hitch – The Income tax (I-T) department puts its foot in, and taxes the remittances made to Indian NRE accounts on technical grounds. So some lucky NRIs have access to professional advice and help, but, most of the other investors are caught in the trap.

A typical example is merchant navy shippies who serve on Indian and foreign ships in international waters and are usually away for over half the year. Well, of course, they are classified as NRIs under the Income Tax Act even though they do not have anywhere in the world to live but their homeland India. The shippies are paid from abroad and most want to invest in India so they have their employers remit their monies to their NRE accounts maintained in India.

The I-T department however has been trying to tax these amounts on various ludicrous technical grounds. However the Central Board of Direct Taxes issued a clarification that rubbished the I-Ts argument that any Indian ship is considered a part of India and hence, a person serving on board has technically never left India. In true form the I-T’s new argument is that those shippies who want to receive their money directly into their Indian NRE accounts will still have to pay tax as the income is received in India.

Now the I-T department is forcing shippies to open bank accounts in foreign centres. Apart from the shippies, Indians working in countries with foreign currency restrictions such as African countries, face a similar problem and many ask their employers to remit their monies directly into their Indian NRE accounts.

In 2015 the finance minister had amended the definition of time spent in India, but the Tax Department is also blocking this by presenting hyper-technical arguments.

One expert says if things do not change banks in countries like Dubai can look forward to a feast of funds from NRIs. Perhaps PM Modi should step in and shut the I-T department up, as he is always on the move courting NRIs around the globe for money for infrastructure and other investments into India.