New Delhi, July 21, 2004
IANS
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 Rs.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 Rs.62,000 a year,"
he added.
The interest will be taxed only when it goes beyond Rs.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 Rs.30.1 billion, up from Rs.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.