Budget sidelined NRIs, but still something to cheer about

March 13th, 2008 - 11:34 am ICT by admin  

A file-photo of P. Chidambaram
(Commentary)
By Kul Bhushan
Have NRIs been sidelined in the latest Indian budget? Since the government is all out to get votes for the general election next year, special concessions for NRIs were perhaps not a priority. The focus was clearly on farmers and the common man. Another factor could be the high inflows of foreign funds invested in stocks and India’s foreign exchange reserves crossing the $300 billion watermark. NRIs are basically interested in higher returns on their cash deposits and investments in stocks and mutual funds, less regulation for joint venture partnerships and more regulation and transparency for property ownership. But the ‘Jai Kisan’ budget did not directly address these concerns.

Despite these factors, NRIs have something to cheer about in the budget. For a start, the NRIs who pay income tax in India have to pay less as the income limits for men, women and senior citizens have gone up. The highest rate of tax of 30 percent will now be on incomes of over half a million rupees as against a quarter of a million rupees earlier. This means more cash in hand to spend or invest in India. Earlier, NRIs were hassled with regulations for transferring money abroad from India, low customs allowance for bringing in gifts and other goods or restrictions on property ownership. These issues do not bother NRIs any more since India started to open its economy.

By increasing the short term capital gains tax from 10 percent to 15 percent, it is clear that Finance Minister P. Chidambaram wants investors - Indians, foreigners and NRIs - to stay invested for longer periods than one year. This limits the speculative investors. The recent introduction of making the PAN (Personal Account Number for Income Tax) and proof of address compulsory for all investors tackles unaccounted funds invested. NRIs are apprehensive since proof of overseas address is now compulsory. It has to be attested by their local authority for this one-time procedure.

New norms for investing in mutual funds are also being streamlined. The offer documents for mutual funds will be simplified to reduce the costs and time involved in preparing and filing offer documents.

So where do NRIs invest? “Energise your portfolio,” says financial planner Sanjay Durgan of Abundanze. He is in line with Ratan Tata, chairman of Tata Steel, who recently said, “Eventually, those who control natural resources will control downstream industries. Control over raw materials is a strategic necessity today. And it is not just restricted to India, it is a global phenomenon.”

Durgan advises that keeping in mind the risk profile of the investor, it would be appropriate to park part of your portfolio with stocks and mutual funds on base metals, other minerals and commodities, water and agriculture; oil, gas and coal and renewable energy and alternative fuels.

The Indian stock market maintained its bull run at the start of this year but turned bearish in February due to global and local developments. After topping the 20,000-mark, it plummeted to below 16,000. Observers say it is a correction. Shrewd investors are picking up bargains. Safe players are wary. Indian stocks are good buys in the current bearish run as the order books of Indian companies are full for the next two or three years, the economy is growing at over eight percent and domestic demand is high with marginal reliance on exports. So despite the US slowdown, investing in Indian stocks remains worthwhile. The name of the game is ’stay invested’.

NRIs earning interest on non-resident ordinary (NRO) deposits may be taxed at 20 percent instead of 30 percent, reported The Economic Times after the budget. NRO deposits are the rupee deposits of NRIs from the money they earn and save in India. These earning deposits could be in the form of salary paid in India, rent received in India, dividend or transfer from local accounts. The interest on this account can be sent abroad after paying due taxes in India. Now the tax on this interest may be reduced by 10 percent, according to the Authority for Advance Ruling, a body for tax disputes. For many years, NRIs have been requesting that this interest should be lowered to 20 percent - the rate at which interest from foreign currency accounts are taxed. An NRI based in Saudi Arabia, V. Ravi Narayanan, filed an application before the authority to get this response.

NRIs have been arguing that since NRO deposits are also convertible foreign exchange, these deposits are similar to foreign exchange assets and should be taxed at the same rate. These rulings usually act as guidelines for tax officers and taxpayers and thus the banks are most likely to implement them in the near future.

With two eminent economists at the helm of the Indian government, Prime Minister Manmohan Singh and Finance Minister P. Chidambaram, even the pre-poll budget is a capital move.

(Kul Bhushan previously worked abroad as a newspaper editor and has travelled to over 55 countries. He lives in New Delhi and can be contacted at: kulbhushan2040@gmail.com.)

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