Service tax on money send by NRIs

The UPA government has decided to charge 12.36 per cent service tax from July 1 onwards on the fees paid by NRIs sending money to their country.

This service tax will be deducted from the remittances sent by employees, including many poor labourers, from the Gulf, the US and other places. This approach is the antithesis of the Government’s policy of encouraging exporters, who bring foreign exchange to India.

Non-resident Indians transfer more than $65 billion annually to dependents in India. These remittances account for more than 3 per cent of India’s GDP and have been instrumental in reducing the current account deficit by shoring up the country’s foreign exchange reserves.

States such as Kerala, Tamil Nadu and Punjab are among the regions worldwide that depend heavily on international remittance. The share of NRI remittance in the State’s net domestic product is 31 per cent in Kerala, 13 per cent in Punjab and 7 per cent in Tamil Nadu.

This plan is very much surprising because, the countries where NRIs are living like western countries, they had to pay tax for the amount they earn at there itself. In Middle east countries, the Arabian Governments were very kind to avoid tax to the foreign nationals even in conditions like bad financial turmoil. Then, how an Indian Government can think about such a strange taxation system.

Who will suffer from taxation for NRI

Indian States such as Kerala, Tamil Nadu and Punjab are among the regions worldwide that do high volume of international remittance. The share of NRI remittance in the State’s net domestic revenue is 30% in Kerala, 13% in Punjab and 7% in Tamil Nadu etc.

A labor, or a professional working outside of India can never think about wiping of 12 percent of what they earn.

Dangers behind taxation for NRI

• Hawala or Black Money flow may grow
• Investment from NRI will go down
• Money will stay overseas due to various investment options for NRIs in other countries.
• NRI will stop sending money and possibility of a new culture of save money abroad will grow.
• A significant reduction in NRI money would reduce the disposable income of the dependents.
• Directly affect the growth of most Indian states