Indian Expats To Lose Significant Tax Breaks

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

31 March 2003

India's expatriate community is currently battling against the Indian government to prevent changes to the rules defining 'not ordinarily resident' (NOR) status. These changes will mean many will have to pay much more tax on their return to India.

The lower house of the parliament is due to meet this week to vote on the recommendations made by the Kelkar Committee on tax reform. Under the new proposals, non-resident Indians will have to pay tax on their global income if they stay in India for more than 182 days in a calendar year. In order to maintain NOR status, Indians will be required to reside out of the country for nine out of the previous ten years. This will then entitle them to benefit from NOR status tax-breaks for the subsequent two years.

This is a marked shift from the current rules which allow non-residents to enjoy the benefits of NRI status tax-breaks for nine years after living abroad for just two continuous years.

The expat community are understandably unhappy over the proposal and some of the more prominent Indian business people stationed around the globe are attempting to lobby support from members of the Indian government to prevent the ruling.

A memorandum signed by members of the Confederation of Overseas Indians and the India Overseas Trust has been sent to both the Prime Minister Atal Bihari Vajpayee and the Finance Minister Jaswant Singh. It warns that this could be a potentially harmful move for the Indian economy, and will discourage many Indians form reinvesting in their homeland.

The campaign against the change in NOR status seems to have received a sympathetic ear from Dr L M Singhvi, a senior member of the ruling BJP party. Speaking to Gulf News Online last week, he said he had received many representations from around the globe asking the government to change its mind. He admitted that the NOR rules had previously provided a useful cushion for Indians living abroad who will have to eventually return to India.

"I see them as India's human export and must create a climate that is conducive to their return rather than put them in a bureaucratic mess," Singhvi explained. He is known to have passed these pleas on to the Finance Minister urging him to treat them sympathetically.

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