Ease of doing investment for NRIs: Need for improved compliance, easy tax system in India
The RERA may improve ease of doing business in India. The Act will improve governance, bring more transparency and accountability in realty sector.
Paying taxes and enforcing contracts are a part of the 11 areas of business regulation on the basis of which the World Bank arrives at the ease of doing business ranking.
As per the World Bank’s annual ease of doing business rankings, India has shown remarkable improvement. It jumped 30 places to 100th among 190 countries. The fact remains that we are still at 100th and that’s no reason to celebrate. For better economic environment, a lot remains to be done. The World Bank measures 11 areas of business regulation to arrive at the ranking. Paying taxes and enforcing contracts are a part of these regulation.
While paying taxes includes payment and time required to comply with all tax regulations, enforcing contracts includes time and cost needed to resolve a commercial dispute. Both regulations are applicable to the ease of doing investment by non-resident Indians (NRIs).
An Reserve Bank of India (RBI) policy formulated in 1981-82 allows NRIs to invest in share capital, fixed deposits and govt securities of Indian companies. For the ease of doing investment, sections 115C to 115J were introduced in the Income Tax Act, 1961. Various benefits of concessional tax rates, benefits on re-investments and option of not filing returns were extended.
The intent was to boost NRI investment by making it easy for them. The biggest flaw, however, is that the statutes were not implemented properly. Google search for legal cases on sections 115C to 115J reveals thousands of dispute cases. The intent and implementation of tax statutes are like North and South Poles of the Indian taxation system.
Today, all high-value transactions are reported to the tax department. The department re-opens assessment or sends notices to verify reported high-value deals. NRIs, who invested in India from their overseas income, are also receiving such notices. The notices are issued without verifying if the income is exempt from filing return under section 115G of the I-T Act.
The assessments are re-opened from Assessment Year 2010-11 and it is causing hardships to NRI investors. Even senior citizens are not spared.
It is not easy for NRIs to sell their property in India. After finding the buyer, they have to get a tax clearance under Sections 195 or 197 for each sale transaction before registering the sale deed. Such deals often fall through due to delays in securing the tax clearance.
For over 30 years, such certificates were issued under Section 197. Currently, after completing all the formalities under Section 197, NRIs are told to re-apply under section 195, stating that they are not covered under section 197.
Moreover, a lot of information is sought which is not directly relevant to the transaction. There is no time-limit for completion of the procedure. Taxpayers are always at the mercy of the tax officer’s discretion.
The tax statutes should be implemented to its intent. There should be low taxing and a friendly tax regime to improve the ease of doing business in India.
Tax compliance systems should be enhanced too. Properly developed, effective taxation systems are crucial for a well-functioning society. In most economies, taxes are the main source of revenue to fund public spending. A good tax system should ensure that taxes are proportionate and not arbitrary and that the method of paying taxes is convenient for taxpayers. Lastly, taxes should be easy to administer and collect.
Another hindrance in ease of doing investment is the time-consuming legal system.
One of my NRI friends booked a flat with a builder in 1996. In 2006, after completion of the building, the builder could not give the possession as he oversold the flats. My friend settled for a refund of Rs 12 lakh — a compromise as he was not ready for a time-consuming legal battle. The refund cheques were unfortunately not honoured by the builders. With no solution in sight, he filed a legal case against the builder. After 9 years, the court ordered the builder to pay Rs 18 lakh to my friend. The amount was not enough to cover his interest cost. Now, the builder has gone to a sessions court and my friend is still waiting for the justice. Unless our courts give time-bound justice, there really cannot be ease of doing business in India. There should be adoption of a series of good practices and reforms that promote quality and efficiency in the judicial system.
There is hope: The Real Estate (Regulation and Development) Act, 2016, may improve ease of doing business in India. The Act will improve governance, bring more transparency and accountability in the realty sector. RERA is aimed at addressing the grievances of property buyers and is being touted as a pro-consumer law.
We hope that this will improve ease of investment in real estate by NRIs as well as resident Indians.
Our ranking in ease of doing business has improved by just 30 ranks. With a series of reforms — a taxpayer-friendly regime and time-bound justice delivery– we can improve our ranking by possibly another 50 positions.
Ease for NRIs
* Paying taxes and enforcing contracts are a part of the 11 areas of business regulation on the basis of which the World Bank arrives at the ease of doing business ranking
* While paying taxes includes payment and time required to comply with all tax regulations, enforcing contracts includes time and cost needed to resolve a commercial dispute. Both regulations are applicable to the ease of doing investment by non-resident Indians
* It is not easy for NRIs to sell their property in India. After finding the buyer, they have to get a tax clearance under Sections 195 or 197 for each sale transaction before registering the sale deed. Such deals often fall through due to delays in securing the tax clearance
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