Tax move on NRI deposits to stay

Thursday, 22 July 2004, 07:00 Hrs
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NEW DELHI: Finance minister P. Chidambaram Wednesday refused to drop the proposal to tax interest earned from foreign currency accounts of non-resident Indians (NRIs).

Chidambaram said the new tax exemptions from tax for income up to 100,000 will cushion the impact.

"The tax exemption on the interest earned from an NRI account was creating a distortion in the tax system," Chidambaram said in a clarification sought by N.N. Krishnadas from Kerala after his reply to the budget discussion in the Lok Sabha.

"NRIs have to pay tax in their host country if they hold an account there. The new tax exemption would save them at least 62,000 a year," he added.

The interest will be taxed only when it goes beyond 100,000.

"I have explained this in a letter to the chief minister (of Kerala) A.K. Antony). I hope he will be convinced by that," Chidambaram said.

Kerala MPs as well as the chief minister have demanded a roll back of the proposal that Chidambaram had made in his budgetary speech.

Chidambaram has proposed in the budget that the interest earned from a non-resident (external) account and interest paid by banks to a non-resident or to a not-ordinarily resident person on deposits in foreign currency would not be exempt from tax from September 1.

The state had expressed its apprehensions that the new decision would affect the inflow of foreign currency to the state, from Keralites mainly in middle-east countries.

The total non-resident deposits in Kerala banks during the last fiscal year touched an all-time high of 30.1 billion, up from 28.69 billion in 2002-03.

About 1.6 million Keralites work abroad and have been consistently propping up the state economy through remittances for the last two decades.

Source: IANS
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