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Dubai: For non-resident Indians (NRIs) living in the UAE, how have the changes announced in the Indian Budget 2023 affected your personal finances? While not many changes were announced, there are a few that can help increase your investment returns in India.
Given that the government has been steadily increasing its focus on streamlining the tax regime for NRIs, the 2023 budget is expected to see some easing of compliance requirements and tax rates for certain revenue streams in India.
“Overall, it’s a good budget for the country, focusing on how to boost the economy at a macro level. For NRIs, I was expecting more relief, but there isn’t much for them in the budget,” he said. Dixit Jain, managing director of The Tax Experts DMCC, a Dubai-based tax advisory firm, said.
Overall, this is a good budget for the country, focusing on how to boost the economy.However, for NRIs, I expect more relief
– Jain says
NRI’s highest expectations met with this Indian budget?
“However, one of the factors that I like is the clarification of Double Taxation Avoidance Agreement (DTAA) benefits on income from mutual fund units, now that NRIs can apply for a Tax Residency Certificate (TRC) and get immediate benefits.”
(A TAX Residency Certificate (TRC) can help you avoid double taxation. It is two or more countries that tax the same income. To apply for income tax relief under the DTAA treaty, you must provide a Tax Residency Certificate (TRC), from the tax authority of your country of residence.)
Ahead of the 2023-24 Budget, experts don’t expect any major changes to the tax system beyond fine-tuning the existing direct and indirect tax regime – and that’s exactly what this time around.
Businesses watch a live broadcast of the Union Budget presentation for 2023-24 organized by the Confederation of Indian Industry (CII) at Le Meridien New Delhi on Wednesday
Image source: ANI
Budget 2023 more like a ‘bonanza for the middle class’
The Budget was created primarily as “middle class wealth”, so income tax measures were announced to ease the burden on ordinary earners. One bright spot is the increase of the personal income tax refund limit from Rs 5 lakh to Rs 7 lakh. But what does this mean?
In the most general sense, a tax refund is a refund you’re entitled to if you paid more in taxes than you were responsible for. For example, if your tax liability is Rs 30,000 but the government pays Rs 40,000 in taxes on your behalf, you are eligible for a rebate or refund on the excess.
So, when taking into account that the current tax refund limit has been raised to Rs 700,000, people in India earning up to Rs 700,000 per annum will not have to pay any income tax under the new tax regime as the personal income tax refund limit has been raised to Rs 700,000 from Rs 500,000 .
4 ways NRIs can benefit from the changes made in this budget
1. Double tax benefits for mutual fund investment income
“NRIs typically impose a 20% tax on any income generated from mutual fund investments at the time of distribution,” Jain added.
“Now, they can obtain a Tax Residence Certificate (TRC) and enjoy a lower income tax relief rate on distribution. This will come into effect from April 1, 2023.”
2. Expand the scope of gifts to NRIs with RNOR status
It was decided earlier in 2019 that if NRIs receive monetary gifts exceeding Rs 50,000 (Dh2,240) from non-relatives, they will be obliged to tax such gifts assuming they are accumulated in India.
“In this Budget, those with ‘Resident But Not Ordinary Resident’ (RNOR) status are also added to the norms for NRIs to accept monetary gifts,” Jain further explained, while adding that the change will be implemented in 2024. Effective April 1.
(Resident but not ordinary resident (RNOR) status is granted to those who have been non-resident in India for 9 of the 10 fiscal years preceding the year, or who have been resident in India for the preceding 7 years preceding the year for a total of 729 days or less.)
NRIs who receive monetary gifts exceeding Rs 50,000 (AED 2,240) from non-relatives are obliged to tax such received gifts. Know what has changed.
3. Offshore Derivative Instrument (ODI) transfer income tax exemption for NRIs
When investing in Offshore Derivative Instruments (ODI), it is the IFSC Banking Unit (IBU) that invests in permitted Indian assets on behalf of NRIs or foreign investors.
What is an Offshore Derivative Instrument (ODI)?
Offshore Derivatives (ODI) are investment vehicles used by overseas investors to invest in Indian stocks and other equity derivatives. Financial derivatives are financial instruments linked to specific financial instruments or indicators or commodities, through which specific financial risks can be traded on the financial market by themselves.
Investors use derivatives to hedge positions, increase leverage, or speculate on the direction of an asset. Derivatives can be traded over the counter or on an exchange. There are many types of derivative contracts, including options, swaps and futures or forward contracts.
“Under Section 115AD of the Act, the IBU’s income from such investments is taxed as capital gains, interest and dividends. After taxation, the IBU passes on these incomes to the ODI holders,” Jain explained.
“Currently, the exemption applies only to transfers of ODIs and not to income distributions to non-resident ODI holders. Hence, such distribution income is taxed twice in India, the first time when it is received by the IBU tax, and the second is when income is distributed to non-resident ODI holders.”
Therefore, in order to eliminate double taxation, it is proposed to amend the norms to also exempt any income from the distribution of offshore derivatives entered into with the offshore banking arm of the international financial services centre.
People watch a live broadcast of the 2023-24 Union Budget presentation at an electronics showroom in Kolkata on Wednesday
Image source: ANI
4. Reduce the tax deduction of 5% on the interest income of non-resident business trusts
Until now, when an NRI made an investment through a business trust, the institution had to deduct and deposit tax at a rate of 5% on the non-resident investor’s interest income.
However, inquiries have been received that in some cases a reduction in the deduction rate may be required due to certain exemptions, such as the exemption allowing notification of sovereign wealth funds and pension funds.
“Since proof of the lower deduction cannot be obtained in this case, there is no tax exemption when it comes to tax reduction,” Jain said.
“To remove this difficulty, it is proposed to amend the norms to provide that amounts subject to tax deduction are also eligible for deduction certificates at a lower rate. This will be effective from April 1, 2023.”
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