Removal of Excessive TDS, Rather Than Reduction in Tax Rates, the Main Expectation of NRIs from Union Budget 2023-24

Mumbai, January 30, 2023: According to a Ministry of External Affairs report, there are 32 million Non-Resident Indians and Overseas Citizens of India across the world, and Overseas Indians comprise the world’s largest Diaspora. From several decades, remittances and investments from overseas Indians have been one of the key sources of strength for the Indian economy. The NRIs are always in favour of government’s efforts towards making investment and taxation simpler, fairer and easier to comply with.

In a global survey, conducted by Mudra Portfolio, a Mumbai-based global NRI and HNI financial service management company that also assists NRIs with tax filing and taxation solutions, over 92% of the 430-odd NRI respondents, said that reduction or removal of excessive TDS across asset classes is their key expectation from the Union Budget 2023-24, as mostly the tax liability is way less than the TDS and necessitates them to wait till return filing to claim the same. Over 90% of them preferred the Income Tax department to send notifications to their overseas contact number instead of their Indian contact number for ease of access.

Currently, the TDS rate (excluding surcharges) for interest on NRO accounts & deposits is 30%, while that of Long-Term Capital gains and Short-Term Capital gains on equities are 10% and 15% respectively. The TDS rate on Short Term Capital Gains from debt (non-equity) Mutual Funds is 30% and the same on property sale (on the sale value), and rental income are 20% and 30% respectively. The rate for dividend income is 20%.

A part of Mudra’s Investor Awareness & Suggestion Program, this interactive survey collected a comprehensive list of what NRIs expect from the upcoming Indian Budget. The respondents were individual Non-Resident Indians from USA/Canada, Africa, Europe, Asia Pacific, Australia, Middle East, and China.

“Every year, the finance ministry works on the Union Budget and solicits views and comments from business and taxpayers. This time, we decided to reach out to the NRI population in about 15 nations,” Mr. Nishant Kohli, Founder, Director and Business Head-Wealth, Mudra Portfolio, said and added, “Normally, a survey consists of a series of questions, but this often excludes the originality/suggestion component. So, we approached NRIs with only one question and asked them to indicate what they would want to see included in the budget, which would give room for them to express the problems they were experiencing and the solutions they desired. And the responses we received were quite overwhelming.”

Most of the respondents of the survey are Mudra’s clients who are in the 35-plus age group. They are qualified professionals or middle-to-senior level executives. About 88% of respondents have invested in real estate, 72% in mutual funds, 15% in direct stocks, 100% in NRE/NRO fixed deposits, 15% in FCNR, and 6% in other products such as PE, PMS, VC, and so on.

“We received several excellent recommendations, and the response was positive. The results should not be interpreted from the perspective of the percentage of respondents who had the same opinion, but rather from the angle of quality and distinctive recommendations offered by the respondents, as the survey was not based on predetermined questions,” said Nishant Kohli.

Based on similarity and topic lines, the responses fall under the following four broad categories:

Investment-related Category (MF, Stocks, etc.)

The survey revealed that 85% of respondents who have invested believe that long-term capital gains on MF/stocks should not be taxed. However, a majority of respondents stated that if taxes are still levied, assets held for more than three years should be exempted because they bore the weight of currency depreciation and conversion.

Also as the TDS on short term capital gains in the case of debt-related investments account for a sizable portion of the profit and necessitates NRIs to wait till return filing to claim the same, about 35% of the respondents wanted that it be reduced.

Another unique recommendation given by a few responders was to lower the 20% flat tax rate on dividends. As it impacts total post tax Return on the investment.

Under real estate category

TDS was considered as a big dampener for NRIs while selling a property. About 92% of respondents stated that the 20%-23% TDS on property sales, that too based on sale value rather than capital gain, should be decreased. Because obtaining the Low TDS certificate from the IT Department takes little time and effort, and purchasers rarely wait that long.

Though Real Estate is the most preferred investment product for NRIs, encashing the gains from the RE investment, on the other hand, is the most time-consuming and difficult process for the NRI.

A few persons suggested that, at the very least, a CA certificate verifying the Capital Gain be obtained and subtracted, preventing TDS from being deducted on the overall selling amount.

One key proposal or concern that deserves consideration is the TDS on rentals, which was raised by a few NRIs who had rented out their home. TDS @ 30% is deducted by tenants, which leads to low cash in hand and most tenants don’t want to deal with the trouble of making TDS payments on a regular basis – as a result it becomes difficult for NRIs to find tenants for their properties.

Fixed deposits & FCNR category

According to 70% of respondents, NRE FDs with terms of less than a year should be introduced, or they should receive interest if their terms are broken early.

When it comes to tax compliance and filing, most respondents to the interactive survey expressed their gratitude to the government for making tax filing so simple thanks to the online IT site compared to past times. However:

90% of the participants want that the intimation of various communications from the IT department should also be sent on the international contact number.
Regarding tax notifications, NRIs want more time to respond to and act on enquiries. They find it difficult to supply data while they are abroad, as NRI must be physically present in India to collect specific documents – such as those stored in a locker
Also, suggestions were made to establish local liaison offices in significant foreign cities to promote the resolution of important Tax and compliance issues
To enhance ease of Investing in India, implementation of Online KYC & Demat Account Opening for Indians located overseas will be a highly welcomed step
An exclusive NRI Helpline Number for Taxation and Compliance can be established

Geographical representation of survey respondents – region wise

Country

Representation

USA/Canada

13%

Africa

18%

Europe

12%

Asia Pacific

25%

Australia

5%

Middle East

24%

China

3%