NRI’s Read This – Service Tax on Money Sent to India

Are you an NRI or know a friend or family member who sends money to his/her family every month? Easily 80% or more of NRIs send money regularly to their families and the amount of money that was received by India last year was about 65 billion USD. Yes, 65 billion USD. Anyways, recently there is some speculation that the indian government could bring this remittance of funds from abroad into the list of services that attract service tax. The purpose of this article is to clarify the situation and smash a huge misconception that people may have about this recent development..

How Much Service Tax should I Pay?

12.36%

Yes, 12.36%. But, before you get scared, this service tax is to be paid on the “Service Charge” or “Fee” that your bank/money transfer agency charges you.

Let me explain…

Every month when I send money, a local bank in Singapore charges me SG$ 5 as service charge. So, whatever money I send, 5 Singapore dollars’ worth rupees will get deducted. For ex: If I send 1000$ today, I should get around Rs. 48,000/- as per today’s exchange rate. But, the bank deducts the fee of $5 which works out to Rs. 240/- from the amount that is credited into my NRE Bank account.

After the introduction of this new service tax rule, an additional Rs. 29.6/- will be deducted by the bank to cover for the service tax. So, in all, Rs. 269.60 will be deducted from the money I am sending and only the remaining gets credited to my NRE Account.

When is this new rule coming into force?

Actually, this part is yet to be cleared by the governmental authorities. In fact, back in 2012, the erstwhile Manmohan Singh led Congress government wanted to introduce this service tax but later retracted. So, in all probabilities, this may get retracted by the current government too…

My Friend was saying 12.36% of the money I send will be taxed. Is it True?

Absolutely NOT.

There are a lot of people who are being scared by people who haven’t understood this new ruling. Yes, when someone says 12.36% service tax, it is natural that we get carried away but this tax is only on the service charge. Almost all banks and remittance services charge a small fee of about 100 rupees or so. This service tax will ONLY be charged on this service fee and not your entire amount. So, as I explained in the calculation above, the impact will be about a few rupees on the amount that eventually gets credited to your account.

No One can charge service tax on the whole amount being sent because India does not have DOUBLE TAXATION. If the money you are sending has been taxed in the country of origin, India WILL NOT ask you to pay Income Tax on it.

Is this Service Tax a Good Idea?

I am not an ardent supporter of such service taxes because a big majority of our NRI population is still working as daily-wage laborers in many foreign countries esp. Gulf. So, even a 50 rupee deduction on the money the send would impact them. I definitely wouldn’t mind paying this 50 bucks as service tax but can the others afford it – I don’t think so.

But, on the flip side, if the government sets any upper/lower threshold for this taxation, we all know what will happen; people who can actually afford to pay this 50 bucks service tax will split up their transfers and try to take advantage of the loop-hole. Sadly we are our worst enemies…

Some Last Words

Though I don’t support such taxes that affect the hard working NRI working class of India, this isn’t as bad as what people project it to be. I checked out a few news websites and even they haven’t clearly explained the impact and there are dozens and dozens of worried people with comments asking how much would be deducted on the amount they send each month. Our politicians and biased media is tweaking this news and creating further confusion.

So, it is my humble request to you. If you are an NRI or have friends/family members who may be impacted by this new service tax ruling, please share this article with them.

Thank you.

Anand