Monday, July 02, 2012

How much tax NRIs have to pay on remittance fee?

A bad news for all NRI's......

For the last couple of days my husband was impatient with the news of Indian government’s proposal to charge 12.36 per cent service tax on the fee paid to banks while sending money back home.

Although it has been confirmed that there will be a service tax from July 1 on the fees paid by Non Resident Indians (NRIs) for sending money back home, it is not clear the amount of tax the expats in the Gulf have to pay for each transaction.

In principle, the NRIs may have to pay a 12.36 per cent service tax on the fee paid by them on remittance. At the moment 850 fils to 1 KD is the fee charged by most of the money exchange companies here per transaction. But it is not clear whether the service tax will be levied on the fee paid in Kuwait or the fee charged (if any) by banks in India for the same transaction as too many technical issues are involved. 

India’s Ministry of Finance and its Department of Revenue which are responsible for taxes did not make an official announcement about the move. However, Minister of overseas Indian Affairs Vayalar Ravi told a reported based in Dubai that most probably the tax will be levied on the fees charged by Indian banks but he was awaiting further clarifications from the ministry of finance to confirm it. “The proposed service tax is not at all on the total remittance made by the Non-Resident Indians (NRIs) but only on the fee paid by them for sending money to India,” Vayalar Ravi, the minister of Overseas Indian Affairs told a reported in Dubai.

Earlier Dr Sasi Tharoor, Member of Parliament (MP), said in Thiruvananthapuram that “This is a shortsighted measure, which risks diverting remittance to hawala channels and tempting otherwise law-abiding citizens to indulge in undesirable malpractices.” He called upon the Indian Prime Minister Dr Manmohan Singh to put on hold the proposal to impose tax on overseas remittances fees levied by banks that takes effect from July 1. In his letter to the prime minister Wednesday, Tharoor pointed out that the decision to impose 12.36 percent service tax on remittances to India by NRIs with effect from July 1 has generated tremendous resentment across Kerala.

However informed sources told that Indian banks do not charge any fee on individual [remittance] transaction from the Gulf region.

It is not clear how the government is going to collect the tax -whether from abroad or through banks in India.

Till now no one is able to give a clear picture.The picture will be clear once we send money to India in July.

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