 "Buying a home from an NRI? Taxes could be easier with this budget proposal")
This will be the first full year budget for the new government. Going by past trends, the government is expected to continue making structural changes rather than providing tax breaks to taxpayers. According to Deloitte, the government is likely to focus more on the new tax regime, quick processing of tax refunds, robust tax collection machinery, and speedy disposal of appeals and grievances.
Divya Baweja, GES National Leader, Deloitte highlights some of the key asks from the 2024-2025 Budget:
Simplify the TDS compliance for home buyers where the seller is an NRI
Buying a house in India can be exciting, but if the seller is a non-resident Indian (NRI), the tax process can get complicated. Currently, home buyers have to follow a more complex procedure for Tax Deducted at Source (TDS) compared to buying from a resident seller.
Here's the issue:
- For properties over Rs 50 lakh, buyers need to deposit 1% of the purchase value as TDS.
- For resident sellers, this is simple – a challan form helps you deposit the tax.
- However, for NRIs, the process involves a higher tax rate, obtaining a temporary account number (TAN), filing a separate tax return, and can be quite cumbersome.
Here's the solution:
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Divya Baweja proposes simplifying the TDS process for NRI property sales. She suggests using the same easy challan forms currently used for resident sellers. This would significantly reduce the hassle for home buyers dealing with NRI sellers.
Enable tax payments from overseas bank accounts (removing the requirement of having a bank account in India)
At present, tax payments in India are accepted in modes such as net banking, debit cards, NEFT/RTGS and over-the-bank counters. The bandwidth has been broadened to include Indian banks, NEFT payments, RTGS payments and UPI payments. However, these are possible with an Indian bank only, which makes it difficult for a non-resident taxpayer to make tax payments.
Non-resident taxpayers who need to deposit tax would benefit if they are allowed to make tax payment from their overseas bank accounts.
E-verification using OTPs to foreign mobile numbers
With the introduction of e-filing of tax returns, efficiencies in time and effort have been brought in. The last-mile step of e-filing is the e-verification process that is restricted to having accounts with net banking/demat facilities with specified banks, Aadhaar OTP to India mobile numbers, digital signature certificates, etc. NRIs living outside India who need to complete the tax return filing process could benefit if the e-verification process can be extended through OTP to foreign mobile numbers or have two-factor authentication (different OTPs for foreign mobile numbers and email addresses). This would reduce paperwork and administrative tasks, such as tracking the receipt by the tax office and applying for condonation of delays. Furthermore, the 30-day time limit should be extended to facilitate verification through physical mode.
Tax refunds to overseas bank accounts
Non-resident individuals, especially foreign nationals, who leave India after closing their bank accounts in India could end up with a refund due to several reasons. At present, the tax refund is payable only to pre-validated India bank accounts. Any delay in processing the refund could cause bank accounts (even if open under the NRO status) to go dormant. This would prevent the refund from being credited to the account. To alleviate the difficulty, foreign bank accounts should be considered for tax refunds in case of PAN holders registered as non-residents/foreign nationals.
Faster Tax Relief for Foreign Tax Credits:
Problem: Taxpayers who pay taxes abroad can claim credit against their Indian tax bill. However, they often receive large refunds because employers don't consider these foreign taxes when withholding taxes initially.
Solution: Baweja proposes government guidelines for employers to consider foreign tax benefits upfront, reducing the need for large refunds later.
Easier Access to Retirement Benefits:
Problem: A new law allows deferring taxes on foreign retirement funds until withdrawal. However, it doesn't apply retroactively, leaving past contributions untaxed.
Solution: Baweja suggests allowing the new law to be applied retroactively, benefiting those who already have existing foreign retirement funds.
More Time for Tax Return Filing:
Problem: The deadline for filing revised or late tax returns is currently December 31st. This can be difficult for people claiming foreign tax credits, as overseas tax returns might not be finalized by that date.
Solution: Baweja recommends extending the deadline for filing revised or late returns until March 31st, allowing more time to align with overseas tax filing schedules.
Fairer Tax Treatment for Bengaluru Residents:
Problem: Bengaluru's high cost of living isn't reflected in tax regulations. For house rent allowance (HRA) deductions, Bengaluru is considered a non-metro city, offering a lower deduction compared to official metro cities.
Solution: Baweja proposes recognizing Bengaluru as a metro city for tax purposes. This would allow employees to claim a higher HRA deduction, reflecting the city's living expenses.
Streamlining Tax on Stock Options:
Problem: Employees participating in foreign stock option plans face double taxation. They pay tax withheld at source (TCS) on remittances and income tax on the stock options as a perquisite.
Solution: Baweja suggests adjusting the TCS to account for the income tax already paid, reducing the upfront financial burden on employees.
Clearer Tax Rules for Electric Vehicles:
Problem: Current tax rules for company-provided cars consider engine capacity for calculating taxable benefits. This doesn't account for the different maintenance costs of electric vehicles (EVs).
Solution: Baweja proposes revising the rules to include battery capacity and charging costs alongside engine capacity when calculating the taxable benefit for EVs. This would provide clarity for both employers and employees using EVs.