- Date : 02/03/2023
- Read: 3 mins
In her speech at the Budget 2023, the Finance Minister proposed many tweaks to the existing regulations for NRI shareholders, impacting how they invest or earn from Indian assets.
The Union Budget 2023 focuses on green growth, infrastructure, investment, and the financial sector. It also proposes changes to share issuance, Tax Deducted at Source (TDS), and tax-filing norms, resulting in benefits for Non-Resident Indian (NRI) taxpayers and investors.
To align the Indian foreign exchange regulations with the Income Tax Act, the government proposed taxation on share issuance to NRIs above the Fair Market Value (FMV). The amendment will prevent the generation and circulation of unaccounted money from NRI investors in a private limited company.
With the new rules, the shares issued to NRI shareholders will not be at a substantial premium that is not justifiable. If the shares are issued at a premium to the non-resident population, Indian companies will have to pay taxes on the amount exceeding the share’s FMV under ‘income from other sources.’
Before Budget 2023 amendments, a business trust was levying a 5% TDS on the interest income NRIs earned from pension and wealth funds.
The income tax department has received many notifications that some cases attracted a lower TDS. These include investments in pension funds or sovereign wealth funds. But NRIs could not avail of TDS exemptions. It is because there was no certificate under Section 197 of the Income Tax Act for lower deductions under Section 194LBA.
The Union Budget 2023 has proposed to lower or nullify the TDS rate if the assessing officer is satisfied that the NRI is eligible for the exemptions. Moreover, from April 1, 2023, sums eligible for tax deduction under Section 194LBA would enjoy deduction at a lower rate.
Earlier, the government was levying a double rate of tax collection and deduction at source (TCS and TDS) for individuals who did not file their tax returns. However, this left an impact on the non-resident population whose TDS and TCS amount was not more than Rs. 50,000 in a year.
The 2023 Budget for NRIs, starting April 1, 2023, provides relief on TDS and TCS filing to NRIs who do not have a permanent establishment in India.
The Union Budget proposes that NRI investors will need to pay lower TDS on mutual fund dividends. This helps NRIs to invest more in India. Since interest rates are on the rise, the flux to fixed-income investments is increasing, and NRIs can take advantage of these funds and equity mutual funds with lower TDS rates. The changes in norms of share issuance for NRI will also eliminate the creation and circulation of unaccounted money, i.e., amounts exceeding the FMV of shares in a private limited company, from NRI shareholders.