Tax deductions and tax rebate are available for non-residents

Non-resident Indians holding income from their home country are eligible for all concessions like their resident counterparts, except those items, which are specifically excluded for non-residents such as benefits of exemption for exports. Section 80-L provides deduction for all individuals and Hindu Undivided Families (HUFs) for interest from deposit in banks, post office and co-operative societies up to Rs 12,000 with extra berth of interest from government securities up to Rs 3,000.

Tax rebate for preferred savings like contribution to Public Provident Fund, and insurance premia are available to all individuals and HUFs irrespective of residential status. However, deductions are available for non-residents only with respect to taxable income from investments in India, while tax rebate is available for savings made out of chargeable (taxable) Indian income. Incidentally, the eligibility for tax rebate under Section 88B upto Rs 10,000 for senior citizens is available only for individual residents in India. Non-residents can easily avoid tax by not receiving any income in India, while the monies, which would have ordinarily been received in India, is kept out of India.

Here one should realise the futility of the Indian Tax laws, which requires a tax payer in India to receive the much needed foreign exchange abroad by having a provision to tax non-resident's income arising abroad on receipt basis in India. Non-residents can easily avoid tax by not receiving any income in India, while the monies, which would have ordinarily been received in India, is kept out of India. There is a need to rationalise the tax system, which does not hasten liability merely on receipt basis so as to encourage remittance of income to India.

Another similarly anachronistic provision is to confer the privilege of exemption for residents based on their foreign income by devising the category of resident but not ordinary residents for two years from the last ten years.

This provision was intended to benefit the erstwhile rules to help residents avoid tax from their foreign income, while permanently residing in India. It continues to confer the benefit of non-resident status to this class of residents, so that they find it advantageous to retain their temporary earnings abroad, which they can legitimately hold with the permission of the Reserve Bank of India or keeping up in reality or by mere pretence of non-resident status under Foreign Exchange Regulation Act (FERA).

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