New Delhi, Aug 26, 2004
Arjan Partap Singh
NRI Press
Government has decided to provide tax rebate under section
88D of the Income Tax on NRI and NRE deposits. Chidambaram said that
tax on NRI and NRE deposits will be deferred till April, 2005. However,
he further added that the provision remains and would be taken up after
consultations as part of the efforts to debate Kelkar panel recommendations.
Union Finance Minister P. Chidambaram had announced
during the Budget in July the withdrawal of tax exemption on income
earned by way of interest on non-resident (external) deposits. Banks
were required to deduct income tax on NRE and FCNR deposits of NRIs
at the rate of 20 per cent from September 1, 2004. Earlier, all interest
earned on NRE deposits in banks in India was tax-free. The Budget had
left global Indians surprised and hurt. The decision was a big blow
to Gulf NRIs
In a marginal relief to the middle class, Union Finance
Minister P. Chidambaram today exempted income upto Rs 1,11,250 from
tax. The move will cost the government exchequer to the tune of Rs 300
crores
Majorty of the NRI depositors felt that it made more
sense to pay a 1% penalty against premature withdrawal, rather than
paying a tax which could vary from 10% to 30%, depending on the income.
NRE deposits had peaked in April ‘03 when the net inflow touched
$900m in a single month and it fell to $153 m in April ‘04.