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Home > Business > Business Headline > Report

Tax blow for foreigners, NRIs to stay

Subhomoy Bhattacharjee in New Delhi | April 25, 2003 12:48 IST

The finance ministry is expected to retain the provision in the Finance Bill, 2003, Budget for 2003-04 to bring foreigners and Non-Resident Indians into the income-tax net after they have stayed in the country for two years.

This will mean that any person residing in India for over two years will have to file an income-tax return in the country incorporating details of his global income.

The ministry is, however, expected to incorporate some provisions to ensure that the filing of returns does not become a harrowing experience for expatriates and NRIs.

The Budget for 2003-04 reduced the tax exemption period for foreigners and NRIs from nine years to two years, in keeping with the recommendations of the working group on non-resident taxation. The working group had also sought the abolition of the not ordinarily resident (NOR) status.

Finance Minister Jaswant Singh is expected to endorse these amendments while replying to the debate on the Finance Bill in Parliament next week.

The ministry is likely to issue a clarification soon stating that exemption from service tax for exporters will be determined on the basis of whether the service is provided within the country or abroad.

This will put an end to the controversy that erupted after the Budget, which said a service provider would not be entitled to claim exemption from tax just by earning foreign exchange.

Finance ministry sources said companies or individuals would have to prove that they had provided the service to an overseas client. The exemptions would now depend on whether the services were consumed abroad or not, they added.

The issue is significant for service exporters, including business promotion and support services, franchise and consultants.

The sources said with the liberalisation of foreign exchange norms, it would have been easy for companies and individuals to claim service tax exemptions by asking even domestic clients to pay for their services in foreign exchange.

However, tax experts like Amitabh Singh of Ernst & Young had argued that the payment of such services in foreign exchange should be considered sufficient since services could not be transported abroad like goods.

The finance ministry is also examining whether the unit-holders of US-64 will suffer a capital loss in 2003-04. The ministry is expected to issue a press note listing the tax benefits for such losses.


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