India Parliament Imposes New Tax On NRI Remittance Fees
Posted on October 01 2020
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New rules pave the way for 12.36% service tax on the fees paid by the NRIs for the remittances.
In Abu Dhabi, a new service tax rule was passed by the Indian parliament is not meant to excise a service tax on the remittances to India made by the Non Resident Indians (NRIs).
The new rules passed by the parliament last month will pave the way for excising 12.36 % of the service tax on the fees paid by the NRIs sending money to their country, said Sachin Menon, Partner and National Head of Indirect Taxes at KPMG in Mumbai, a prominent financial advisory in India.
He even clarified that no tax can be excised on the income or the remittance made by the NRIs abroad in the present legal system.
He explained that the proposed service tax is on the fee on the remittance made by the NRIs. The tax is not at all on the income earned by them in abroad or the remittance that they make from abroad.
Rumours had spread among Indians that they would end up paying a service tax of 12.36 % of the remittance to India, which will be unbearable to the most of them.
Even a prominent Member of the Indian Parliament in Kerala and several expatriate organisations in the Gulf started sending representations to the Government of India protesting against the 12.36 % of the service tax on the remittance (not understanding the fact that the proposed tax is on fee of the remittance).
This made widespread anger, anxiety and confusion in the Indian community in the UAE and other foreign countries.
The government made this rule indirectly in a proposal of the service taxes which will be implemented from July 1. Menon said, although tax may be a small amount but it will be counterproductive as it will lower the income of the workers who constitute majority of the Indians in the Gulf. And instead of encouraging the foreign remittances to the country, the government is discouraging it through this foolish and short sighted move.
Apparently, due to this backdoor entry of the rule, the Government of India officially has not explained to as how the tax will be collected.
In principle, the Indians in the UAE may have to pay a 12.36 % of the service tax on the fee paid by them on the remittance. At the moment Dh 15 is the fee charged by most of the money exchange centres in the UAE on each transaction. But it is not clear whether the service tax will be excised on the fee paid in the UAE or the fee charged (if any) by the banks in India for the same transaction as too many technical issues are involved.
Menon said the new laws empowered by the Government of India to excise a service tax on a transaction carried out from abroad, but there may be certain exemptions which will be clear later only.
Another expert said that although the modalities of the tax collection are not yet clear, the amount may be around INR 100 (Dh 6.44) or slightly more as per the transaction, said K.V. Shamsuddin, a Director at Barjeel Geojit Securities LLC in Dubai, an international brokerage firm. He said the amount may be small but it will affect the sentiments of the NRIs who are giving great contributions to the Indian economy.
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