India’s search for black money overseas is having an unintended consequence, one that could affect one of its stable sources of dollars.
NEW DELHI – India’s search for black money overseas is having an unintended consequence, one that could affect one of its stable sources of dollars. Investments by non-resident Indians, or NRIs, and their funds parked in India are coming under the glare of the tax authorities in their home countries.
Indian income-tax authorities are sending financial details of NRIs to their respective countries under the information exchange agreements inked by New Delhi with many countries.
“Not only are we getting data on our taxpayers from other countries, but we are also sharing details on non-residents,” said an income tax official, adding that many countries were actively seeking information but did not give the names.
This automatic exchange of information is a result of the efforts made by Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee at the G-20.
Indians settled overseas have collectively pumped in nearly $9.7 billion in NRI deposits in India in April-February 2011-12 financial year to take advantage of the higher returns available here.
Interest rates of these NRI deposits can be as high as 9.5% in some cases, which yields a handsome tax-free package for investors even after adjusting for the rupee depreciation.
Last week the Reserve Bank of India lifted the ceiling on one type of foreign currency deposits and eased the restriction on foreign currency credit to exporter to attract more flows to shore up the rupee, which has lost 9% against the dollar since March because of economic concerns, deterioration in current account because of high trade deficit, and slowdown in capital flow.
Alarm bells have already begun to ring with other countries taking active interest in the information sharing programme.
Some countries fear that non-residents may be parking funds in India without disclosing them to avoid paying taxes back home.
Incidentally, the US Internal Revenue Service had last year raised an alarm on Indian Americans stashing away wealth in India and had sought judicial action to coerce HSBC into sharing data on 9,000 persons.
India fears that NRI investors could get into trouble if they have not been declaring the income earned from Indian investments in their declaration.