India Parliament imposes new tax on NRI remittance fees

New rules pave the way for 12.36% service tax on the “fees” paid by NRIs for remittances

Abu Dhabi  A new service tax rule passed by the Indian parliament is not meant to levy a service tax on the remittances to India made by Non Resident Indians (NRIs), a prominent financial consultant in India told Gulf News on Thursday.

The new rules passed by the parliament last month will pave the way for levying 12.36  per cent service tax on the “fees” paid by 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 clarified that no tax can be levied on the income or remittance made by NRIs abroad in the present legal system.

Menon 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 abroad or the remittance they make from abroad, he explained.

Rumours had spread among Indians in  the Gulf that they would end up paying a service tax of 12.36 per cent of remittance to India, which will be unbearable to the most of them. 

Even a prominent Member of Indian Parliament in Kerala and several expatriate organisations in the Gulf started sending representations to the Government of India protesting against 12.36 per cent service tax on remittance  (not understanding the fact that the proposed tax is on fee of remittance).

This made widespread anger,  anxiety  and confusion in the Indian community in the UAE and other foreign countries. 

The financial consultant said the government made this rule indirectly in a proposal of  service taxes which will be implemented from July 1.  Menon  said, although tax may be a small amount ,  it will be counterproductive as it will low income workers who constitute majority of Indians in the Gulf.  And instead of encouraging foreign remittances to the country, the government is discouraging it through this foolish and shortsighted move, the expert said. 

Apparently due to this’ backdoor entry of the rule’, the Government of India has not officially explained how it will collect this tax.

In principle, the Indians in the UAE may have to pay a 12.36 per cent service tax on the fee paid by them on 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 levied on the fee paid in the UAE or the fee charged (if any) by banks in India for the same transaction as too many technical issues are involved. 

Menon said the new laws empower the Government of India to ley a service tax on a transaction carried out abroad, but there may be certain exemptions which will be clear later only. 

Another expert told Gulf News 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  per 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 NRIs who are giving great contributions to the Indian economy.