Union Budget 2023: Rules for TDS and share issuance changed for NRIs. Here’s what’s new

Proposed changes for NRIs in the Union Budget 2023

Union budget 2023 Changes for NRIs

The Union Budget 2023 had many positive changes for the resident Indian taxpayers with respect to the new tax regime. However, no major changes were made for Non-Resident Indians (NRIs). That being said, the finance minister did update some investment and saving norms which might affect NRIs. Here’s a look at such updates-

  • Issuance of shares

In the latest budget, the government has proposed taxation on shares issued to NRIs above the Fair Market Value. The amount in excess of the FMV will be taxed per the latest rules. So, if the shares are issued at a premium to NRIs, Indian companies will pay a tax on the amount exceeding the FMV. Moreover, companies will have to follow the discounted free cash flow method or the adjusted book value method for the subsequent assessment years with effect from 1st April 2024.

The rule has been introduced to bring the foreign exchange regulations atpar with the Income Tax Act. Moreover, with the new rules, the creation and circulation of unaccounted money, i.e., amount exceeding the FMV of shares of a private limited company, will be eliminated.

  • TDS deductions

Before the budget proposed new changes, a TDS (Tax Deduction at Source) of 5% was applicable on the interest income earned by NRIs on investments made in pension and wealth funds.

However, some cases attracted lower TDS, like investment in a Sovereign Wealth Fund or Pension Fund. NRIs could not benefit from TDS exemptions on these investments because the certificate required for lowering the TDS per Section 194LBA was not available under Section 197.

Recognizing this flaw, the government has proposed lowering or nullifying the TDS rate. Per the new rules, the Assessing Officer can reduce the TDS rate to zero if he is satisfied that the NRI is eligible for the same. Moreover, from 1st April 2023, eligible investments under Section 194LBA would enjoy lower TDS rates.

Related - Here's a look at the rules for TDS exemption for NRIs without a PAN Card

  • Gifts

Under existing rules, gifts received by NRIs exceeding Rs.50,000 was not taxed. However, in the new rules, if not ordinarily residents receive gifts from Indian residents without any consideration and the amount exceeds Rs.50,000, the gift will be deemed to arise in India and will be taxed. The new rule will come into effect from 1st April 2024.

  • Rules on TDC or TCS filing

Currently, the government is levying a double rate of TDS or TCS (Tax Collected at Source) for individuals who do not file their tax returns. However, this affects NRIs whose TDS or TCS amount is up to Rs.50,000. So, per the latest proposals, NRIs not having a permanent establishment in the country can enjoy relief on TDS and TCS filing.

So, if you are an NRI, know these changes and how they would affect your finances and investments in India.

Related - Know more about NRI rental income and tax advance


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