India To Press Ahead With Tighter Tax Rules For NRIs

by Mary Swire, Tax-News.com, Hong Kong

28 April 2003

It is expected that the Indian Finance Ministry will press ahead with the provision in the 2003 Finance Bill that requires expatriates and foreigners to pay domestic income tax when they have been resident in India for two years, reports revealed last week.

This is in keeping with the Kelkar committee's proposals, upon which the changes contained within the 2003-04 budget to the NRI (Non Resident Indian) and NOR (Not Ordinarily Resident) rules were based. The tax exemption period for NRIs has now been reduced from nine years to two years, and NRIs will need to have resided outside India for nine out of the previous ten years to qualify.

It is thought that Finance Minister Jaswant Singh will confirm these changes during this week's debate on the Finance Bill.

The finance ministry is also expected to issue clearer guidelines on the proposals to close a loophole that allows exporters to avoid service tax by taking payment for goods in foreign exchange. To remain exempt from taxation, companies would now have to prove that the goods or services that they sold will be consumed offshore.

However, experts point out that there will still be a certain amount of ambiguity in these new rules, as it will be difficult for firms in the service sector to prove that a service is being physically exported.

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