Saturday, 16 May 2009

How India discourages NRIs from returning

I have read various articles and interviews on this subject, and all of them focus on the "culture shock" of returning - the inefficiencies and convoluted ways are apparently the main discouragement.

However, I have never seen anything in print on the following issue:

Someone I know, let us call her Shanti, who has been to India regularly and therefore does not face that problem, was in discussions regarding a job offer in India which he was considering very seriously.

Everything else seemed to be more or less settled, when she discovered that, if she stays in the country for 182 days or more, she becomes liable to tax in India for all her income worldwide!

As she has a pension from her employment abroad (on which she pays tax in that country), she did not want to pay tax twice over! She could not get any clear answer regarding whether that would or would not be covered by any Double Taxation Treaty.

She wanted to return to India to contribute to the development of the motherland, not to wrestle with tax officials interested in hassling her for a bribe.

The company which was discussing the job offer with her had, on the basis that she was an NRI, agreed to pay all tax due on income arising from employment with them.

So she offered to the company to disclose her pension income and to take the job on condition that the company dealt with the Tax Office on her behalf, while she indemnified the company against any tax liabilities in India or abroad.

Interestingly, the company declined to do this. Preeti decided that if even an Indian company was unwilling to tangle with the tax inspectors on her behalf, she had better not go.

It is right and proper for the Indian government to want taxes to be paid by NRIs as from "normal" Indians on all income derived from activity in India.

But why exactly does the Indian governemnt want to tax income arising abroad from activities or investments done prior to an NRIs return to India?

Anyone know?

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