India denies taxing remittances

India was rumoured as planning 12.36% tax to remit money

In a move that will soothe at least some of Indian expats’ ruffled feathers – they’re not too happy about the strengthening rupee – Indian Prime Minister Manmohan Singh yesterday dismissed reports about plans to introduce a service tax on remittances by the country’s nationals living and working abroad.

Expat Indians – also known as non-resident Indians, or NRIs – were up in arms through a number of expat associations after rumours surfaced late last month that India was planning to introduce a 12.36 per cent tax on the fee charged to remit money from their countries of residence to India.

A number of experts cited the proposed move as fundamentally flawed and argued that any such steps would hurt the millions of low-paid Indian employees working abroad, and some had even suggested that it would lead some of them to opt for illegal means to remit money home.

However, Singh yesterday clarified to Kerela Chief Minister Oommen Chandy that no decision on the levy has been taken thus far, assuring him of a status quo on the issue.

Singh has also sought details from the Finance Ministry on the issue, said Chandy who raised objections before the Prime Minister over the reported move by the government to levy the tax on the money of Indians working abroad.

“Prime Minister has dismissed reports that the Government is planning to charge 12.36 per cent on all foreign remittances to India,” Chandy told reporters after meeting the Prime Minister yesterday.

India is the world’s largest recipient of foreign remittances, receiving $64 billion from NRIs in 2011, according to World Bank data.

Earlier this month, Bikram Singh Majithia, Punjab revenue, information and PR, and NRI affairs minister, described the proposed decision of the Congress-led UPA government to include foreign remittance to India by NRIs in the ambit of 12.36 per cent service tax as a retrograde step as he said it would discourage them to remit money through legal channels, thus giving a fillip to the hawala trade.

While talking to media, Majithia said that, “Congress-led UPA government seems to be in frustration to free itself from policy paralysis that has moved the clock of economic reforms in reverse by taking such decisions, which would put a stop on inflow of foreign direct investment in the economic growth of the country.”

Calling it a step backward, Majithia said such a move would be in contravention of the economic prerogative of attracting more foreign funds. “On one hand, we are luring NRIs to invest in [the] country and become part of India’s economic growth; the service tax on remittances by them to their parent country would discourage them to help [the] country with their remittance,” he said.

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