Sending money to dependents in India by non-resident Indians (NRIs) turned costlier beginning Sunday.
The service of transferring remittances into India have been brought under the service tax regime, and will attract 12.36 % tax.
“It is unfair to tax those who bring valuable foreign exchange for the country,” said Menon adding that the move is likely to push many NRIs to explore illegal channels to bring their dollars into the country.
Currently no other country imposes tax on remittances. According to the Reserve Bank of India data there are 30 million NRIs.
Remittance flows into India amounted to $64 billion in 2011, compared with around $58 billion the previous year, according to World Bank's Migration and Development report. Remittances are expected to be around $70 billion in 2012.
Experts say that imposing tax on remittance is also unjust because a major share of the money is used to the daily needs of family members of the NRIs. “The tax will hurt semi skilled and unskilled workers the most that send around Rs 10,000-12,000 every month to meet daily needs of their family members in India,” said Sudhesh Giriyan, head, Xpress Money Business, a global money transfer firm.
“NRIs are disappointed by the imposition of service tax as it puts additional financial burden on them,” he said.
Perhaps all NRIs should not be clubbed and treated as one, said one analyst.