Calling all Non-Resident Indians or NRIs to pay attention here.

It is just today that I received an email from one of my colleagues regarding a news item notifying NRIs about a directive from the Department of Income Tax, Government of India that mandates a levying of 5% income tax on NRIs’ income from abroad or place of residence outside India. It mentions that the Indian government is coordinating with governments of countries with major populace of Indians to bring their means of earning and their incomes under taxation by way of government to government contact.

To be more clear about what I received, I will reproduce the email here:

5% TAX ON FOREIGN INCOME FOR NRI STARTING 2009 -10

Government of India today announced imposition of a flat 5% tax on all NRIs over their world-wide income. Income that is already taxed in India has been kept out of the purview to avoid double taxation. No double taxation benefits would be available for this 5% tax, meaning even if you are paying tax on your income in a country with which India has double taxation agreement, the benefit would not be allowed against this 5% tax. All those Indians who are holding Indian Passports and have been out of the country for more than 180 days during the year are under this requirement. Income proof would have to be submitted in form of employer certificates, foreign tax filings etc. Indian government is also coordinating with Australia, Europe, America, UAE and other countries on collecting Income data for its citizens as part of data sharing initiative on terror prevention measures.

This has been hailed as bringing in compulsory participation in development of India from Non resident Indians.. This means NRIs can no more just continue to retain their Indian citizenship without paying taxes in India. Though it may not be favorable in view of the NRIs who already bring substantial forex in form of remittances and Investments. This is bound to cause a lot of heart burn for the Indian community residing outside..

This is expected to generate ~10 Billion INR tax collection for the government in the year 2009-10.. For more information on this rule, tax filings and forms visit http://www.incometaxindia.gov.in/

As you can see, the email feeds on the fear of taxation of NRIs who earn their hard money abroad. Please note that I researched the topic (mostly because of selfish reasons), I found the email to be a hoax. To support my argument in this regard, I have found one other worried gentleman getting a reply from one qualified CA professional. To view the topic, please follow this link.

So, please stop panicking about this email and I request everyone who reads my article to STOP this email from circulation. It’s claims are totally unfounded and untrue and therefore DO NOT need to be circulated. In the future if you receive emails, please check out the basis of that email before forwarding it to your friends or family.

I hope this post will be helpful to all the people affected by this BASELESS email regarding 5% income tax on NRIs