New Income Tax Bill, boon or bane for NRIs?

Published on Jan 02 2011 - - Expat Ride - -

– Mohammed Saifuddin,

The Indian government has tabled a bill in parliament to replace existing income and wealth tax laws with a new tax code which is believed to widen tax net, provide incentives to investors and increase government revenues. It will also compel the NRIs to shorten their stay in India if they want to get exempted from the proposed new tax.
The proposed DTC Bill mandates NRIs to pay tax on their global income when they reside in India for a period or periods amounting to 60 days in a year, whereas in the existing IT Act NRIs have provision to stay for 182 days in their home country.

The Finance Minster Pranab Mukherjee presented the proposed bill in the parliament in this August. And if everything goes as planned by the government, the new tax code will be effective from 1st April 2012.

As the stage is all set by the Indian government to implement the new tax code, the Indian expatriates working in the Gulf countries have raised their concerns on the government’s intention to bring them under the tax net. Most of the Indians working in the six Gulf countries viz., Saudi Arabia, UAE, Qatar, Bahrain, Oman and Kuwait are semi skilled workers and blue collar employees, whose earnings are the result of their hard work under the pathetic conditions. Their earnings are not as hefty as that of the NRIs in America or Europe. With the limited income and responsibility of family back home, they retain a little amount for their disposal which is hardly sufficient for their maintenance. Most of them live a bachelor life without families as they can’t afford to bring their families to live with them. In fact, the ill fated workers, most of whom are the laborers, live in such a pitiable condition that a whooping ninety five percent of them don’t save anything and forced to return home empty handed when their contract is finished.

The rising concern of Indians in the Gulf countries should be sympathetically considered by the Indian government. The Indian government declared that the intention behind including NRIs under the tax net is to fetch those businessmen who spend considerable time out of India; just to get exempted from the income tax.

Understandably, government believes that by compelling the NRIs to stay for a minimum of ten months a year out of India, they will curb such businessmen. Whatever the intention government may have, the new tax code will definitely affect the Indian workers in the Gulf countries adversely.

The contributions of the Gulf NRIs are not only evident in India, it is commonly known that their money remittances play vital role in strengthening Indian economy. Other than that, there are many other sources through which the hard earned money of these poor Indians in Gulf is helping the country.

The dismal condition of these poor workers in Gulf countries was revealed in the shocking result of an on-line survey conducted by a Dubai based NGO Pravasi Bandhu Welfare Trust. According to this survey conducted few years back, a whopping 95 per cent of Indians in the Gulf countries do not save even a penny and return empty handed to India irrespective of their stay in the oil rich countries. Even after working for say a decade or more, they can’t save for their future. Only five per cent of the Indian work force; including the white collared, bring enough money to live happily back home. Similar percent of them save enough money to live happily; even after working for a decade. The survey also revealed that ninety percent Indian expatriates in Gulf countries live without their families.

As per the survey, only 15 per cent of Indians in Gulf get salaries above 4500 Dirham. Only two per cent of NRI’s families back home save something for future.

The most significant observation of the survey is that the middle income NRIs in the Gulf countries sacrifice even the basic necessities and leads a pathetic life for the sake of the families in India. The extreme climatic conditions under which they work lead them to health problems, but neglecting this; Indian workers keep on working to remit maximum amount to ensure good standard of living for their loved ones back home.

The survey further revealed that the dependents of these workers in India spend generously and lead happy life but they don’t consider saving something for the retired life of their bread earner. Only two percent of the families save something from the remittances from Gulf.

Commonly it is believed that the Indians in Gulf save hefty amounts and stack their remittances in their NRI accounts. But the real fact is contrary to this popular belief. In fact their regular remittances to families in India are spent on domestic needs, acquiring a house or on marriages of their sisters and daughters. According to the Reserve Bank of India report “Remittances from Overseas Indians: Modes of Transfer, Transaction Cost and Time Taken”, a predominant portion of 61 percent of the remittances sent to India from abroad is used for family maintenance (food, education, health etc).

Most of the workers in Gulf don’t have any source of regular income in India when they return. This mostly results in their seeking another job in Gulf. The inability of these poor workers is evident in the RBI report which states that only four percent of the remittances are invested in land, property or equity shares.

The Indian workers in the Gulf countries have bleak future in India when they return home. Upon their return to India, firstly they have to compete with the young job seekers who are definitely the first option for the employers who are eager to add new blood in their teams.

Secondly, they don’t have any source of regular income in India to live a happy life. This mostly forces them to end up in seeking another job in the Gulf or take up petty jobs to survive.

The Pravasi Bandhu Trust survey revealed that only five per cent of respondents feel they could lead comfortable life if they go back for permanent settlement in India.

Based on the above facts, it will be really unfair to put the tax burden on the shoulders of the Indian expatriates living in the Gulf countries. As India already has a law against double taxation; it is most likely that these Indians in the Gulf countries would be mostly affected by the new tax code.

It will also force NRIs to count the number of days they live in India and discourage them from travelling to India. There are many low income workers like construction labors, helpers, maids, etc., who can’t afford to go on holiday ever year. They travel once every two or three years and stay for as long as three months.

Some companies facing financial problems send their employees for unpaid vacations for as long as six months. Few others are forced to lengthen their vacation due to their health problems. It will be unfair to ask such poor workers to pay tax if they spend long vacations at home.

There is a necessity for Indian government to conduct study of the Indians in Gulf and carefully draw a line of distinction between the Indian workers in the Gulf countries and those living in other countries.

There is a long pending demand from Indians in this part of the world to rip off the NRI tag from them. The poor Indian workers in Gulf should not be treated on par with those NRIs in western countries.

Many times, Indian ministers and political leaders have accepted this fact and favored giving special status to Gulf NRIs, but none of them raised any voice in the parliament to give such a status and to create special category to these people.


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