Can NRIs Reap Good Returns in 2007?

Driven by a positive growth, Indian economy is riding growth
waves. Exports are making mark and foreign reserves have risen
to a record $180 billion. Finance minister, P. Chidambaram has
focused on offering the best education and healthcare facilities
on the lower prices, thereby making them available for all.

More and more foreign companies are expanding their horizons
to India and Indian conglomerates are buying out foreign companies,
new investment incentives are loosening their importance. Thus,
there is nothing to be taken aback if the budget does not talk
of any special provisions to attract the interests of Non Resident
Indian (NRI) investors. However, NRIs like another Indian, will
be paying less tax but also get lower returns on Indian stocks.

NRIs, paying income tax in India can leverage the benefits of
tax exemption as it has been raised by Rs. 10,000 to Rs. 11,000;
to Rs 145,000 for women and Rs.195, 000 for senior citizens. However,
an additional cess named secondary and higher education cess is
increased. In effect, the cess has increased from 2 per cent to
3 per cent on all direct and indirect taxes to fund higher education.

NRIs investments in stocks will yield low returns. But the budget
disappointed businesses and investors as it brought employee stock
options under taxation and raised the tax on dividends from 12.5
percent to 15 percent. When a cess of three percent is added,
it amounts to over 18 per cent, which clearly underlines the dividend
to drop by over 18 per cent on Indian stocks. Likewise, NRIs making
investments in a money market mutual fund would have to pay 25
per cent dividend distribution tax.

The budget does not have any special provision laying down clear
criteria for determining the real estate investments. To attract
more NRI
investments in the property market, the stamp duty
should be uniform across the country. As proceeds of remittances
received from abroad through normal banking channels, NRIs will
find themselves at high loss if seller asks for a major part of
the amount in cash, as the sale price is a fraction of the total
amount paid for a property. Since, this is not strictly a budget
provision; the guidelines can be revised again by the finance
minister.

NRIs can avail a five-year tax holiday if they park their money
in economy hotels and convention centers. However, they need to
complete and begin operations in the National Capital Territory
of Delhi or in the adjacent districts of Faridabad, Gurgaon, Ghaziabad
or Gautam Budh Nagar in between April 1, 2007 and ending March
31, 2010.

General permission has been granted to NRIs to open NRE/FCNR
deposit accounts in selected foreign currencies or in rupees with
Regional Rural Banks that are making good progress.

Photo: Sattva Global City, Rajarajeshwari Nagar, Bangalore (2024) 43 by Gpkp, licensed under CC BY-SA 4.0, via Wikimedia Commons.