Union Budget 2022: What Is In It For The NRIs?

Finance Minister Nirmala Sitharaman presented the Union Budget 2022 on 1st February 2022.

The budget 2022 focuses more on spending money to strengthen the economy on a macroeconomic level, with specific growth impetus on digital technology, fintech, logistics, infrastructure, start-up ecosystem, and provision of e-services to Indian citizens.

The total government expenditure is estimated to be Rs 39.45 lakh core (USD 528.4 billion) and the projected fiscal deficit is at 6.4%. Capital expenditure is estimated to be Rs 7.50 lakh crore (USD 100.4 billion), around 19% of the total spending.

India's gross domestic product (GDP) growth is targeted at 9.2% for FY23.

Budget Highlights That Are Pertinent To The Non-Resident Indians

NRI Taxation

Income earned in India by Non-Resident Indians is taxable and is subject to TDS (Tax deducted at source). The rate of the tax depends on the source of income. The source can be salary received in India or payments for services provided in India, real estate income, capital gains on transfer of assets located in India, income from fixed deposits or interest on savings accounts, etc.

Interest earned on the NRE account and FCNR account is not taxed. However, interest on the NRO account is taxable.

Read: Guide to NRE and NRO accounts

The NRI status of a person of Indian origin or a citizen of India is determined by the number of days they have stayed in India and the amount of income earned in India. If the following conditions are met, a person can be classified as an NRI.

• He/she has stayed in India for less than 182 days, and the income earned is less than Rs 15 lakh
• or he/she has stayed for less than 120 days, but the income earned exceeded Rs 15 lakh
• or the number of days in India is 120 days or more but less than 182 days and less than 365 days in the preceding four financial years, and the income earned in India exceeds Rs 15 lakh.

Tax Changes In Budget 2022

Income Tax

There are no major changes in the existing taxation regime for NRIs or the taxpayers. The income tax slabs for FY 2022-23 are identical to FY 2021-22 for individuals and corporations.

Surcharge On Long Term Capital Gains (LTCG)

The surcharge on LTCG on all types of assets including real estate, irrespective of the capital gain amount, is capped at 15%. Capital gains are not applicable to an inherited property as there is no sale. However, if an NRI decides to sell the property, any profit arising from the sale will attract capital gain tax.

Previously the 15% cap was only applicable to LTCG on listed equities and equity mutual funds. NRI investors and overseas income will get relief from the 15% cap on the surcharge on LTCG tax.

Updated Tax Return

Taxpayers can now file an updated return of income within two years from the end of the relevant assessment year. This provision will allow the assessee to file an updated return on additional tax payments.

Taxpayers will have to pay a 25% penalty on tax and interest due if it is filed in the year after the assessment year and a 50% penalty in the second year.

Cooperative Societies

Alternative Minimum Tax has been reduced from 18.5% to 15%. Surcharge on cooperative societies has been reduced from 12% to 7% for those with income between Rs 1 crore and Rs 10 crore. This will provide a level playing field between cooperative societies and companies.

Tax On Virtual Digital Assets

Famously dubbed the "Crypto tax." Income earned from the transfer of digital assets such as cryptocurrencies and non-fungible tokens will be taxed at the rate of 30%. No deduction is to be allowed except the cost of acquisition. And TDS will be levied at 1% above the threshold.

Any losses from the transfer of virtual digital assets cannot be set off against any other income or carried forward to subsequent years. Gifts of virtual assets will also be taxable at the recipient's end.

Tax Incentives For Start-ups And New Companies

Tax incentives for startups have been extended by one year. Eligible startups incorporated under Section 80-IAC have an option for a tax holiday for any three consecutive years out of 7 years if they incorporate by April 1, 2022. These tax benefits have been extended until March 2023.

New domestic companies engaged in manufacturing can pay tax at 15% (without claiming any deductions) if the manufacturing begins by March 31, 2023. This has been extended to March 31, 2024.

RBI To Issue Digital Currency/ E-Rupee

The Reserve Bank of India will launch a central digital currency in 2022-23. After China launched e-CNY during the Winter Olympics in Beijing, other major countries are scaling up their digital currency initiatives.

The introduction of a digital rupee is sure to bring beneficial changes, especially to NRIs sending remittances to India. It can reduce the cost of cross-border remittances and increase the speed of money transfer.

India has been the top remittance-receiving country in the world. And it is constantly on the rise, with a record $90 billion in remittances sent in 2021.

E-Passport To Be Rolled Out

E-passports with embedded chips and futuristic technology will be rolled out in the financial year starting April 1 this year.

The design of the e-passport was tested in a laboratory recognized by the U.S. government, and ICAO-compliant was confirmed via a tweet by Sanjay Bhattacharyya, Secretary, Ministry of External Affairs (MEA). The chip will contain the holder's signature, fingerprints, and store 30 visits. This will facilitate contactless immigration.

Digital Banking Expansion

With digital payments and fintech growing rapidly in India, the Finance Minister proposed to set up 75 digital banking units (DBUs) in 75 districts across India through scheduled commercial banks. This will ensure that the benefits of digital banking reach every wide in India in a consumer-friendly manner.

Also, 1.5 lakh post offices will be connected to the core banking system to help drive financial inclusion and access to bank accounts through net banking, mobile banking, and ATMs. Online transfers between post office accounts and bank accounts will become easier and more convenient.

Support For Start-Ups

Start-Ups will be promoted to facilitate Drone-As-A-Service (DrAAS). The drone industry has the potential to transform various sectors.

The budget also proposes to set up a Center for Processing Accelerated Corporate Exits (C-PAGE), which will allow for a quick exit when failure is imminent. 

To ease the exits from startups and Unicorns, the surcharge on unlisted shares will be reduced from 28.5% to 23%. This will likely facilitate investors' exits and investment churn. This is needed for a vibrant start-ups community to flourish by recognizing the failures sooner and hence sort out problems quickly.

A high-level committee will also be set up to review regulatory compliances for venture capital and improve the start-up ecosystem.

In conclusion, Union Budget 2022 from an NRI taxation perspective is not drastically different. Other major announcements include e-passports, taxes on digital virtual assets also known as the Crypto tax, and the launch of India's central bank digital currency in the next financial year starting April 2022.