New India Manifesto –  Chapter 23: Non-Resident Chargeback and Non-Resident Income Channelling

Non-resident Chargeback

Chargeback: A chargeback is the return of funds to the original payer of a transaction, particularly one using a credit card. I am applying this term here to denote government chargeback against non-residents.

Non-resident chargeback refers to the chargeback by the government against a non-resident who has benefitted by draining the resources of the home country and is ready to give up citizenship of the home country for personal welfare, which will further drain the resources of the home country.

Why is Non-resident Chargeback Necessary?

Consider the lifetime of individual ‘A.’

• ‘A’ receives education from government/aided schools for free.
• ‘A’ applies for various scholarships from the government.
• ‘A’ receives admission in college under merit seat/reservation with lower fees in government/aided institution.
• ‘A’ takes an overseas education loan for higher education using the Indian property of their parents and leaves India.
• ‘A’ settles in the new country and pays back the loan. A wants to secure citizenship of the present country and not remit towards India.
• A few years later, ‘A’ gets a property share from their parents and ‘A’ sells the property and takes proceeds by further draining their home country.

Consider the lifetime of individual ‘B.’

• ‘B’ receives education from private schools by paying high fees.
• ‘B’ do not take scholarship or other financial benefits from the government.
• ‘B’ secures admission to private colleges, and parents pay from pocket.
• ‘B’ receives a job offer from a foreign company and leaves their home country.
• ‘B’ also takes part-time education admission for higher studies abroad by paying from their purse.
• ‘B’ takes citizenship from another country, sells the property and drains the home country.

Individual A, to serve self-interests, has forgotten moral, social and economic responsibility and national duty to their home country. As a result, individual A has caused severe economic damage by hindering the nation’s progress than individual B.

Opportunity discrimination and draining economy

Person S, staying in their home country for his life, could have received scholarships, admissions, and loans instead of person A, who left. By denying that opportunity to another individual, ‘A’ has committed opportunity discrimination. If person A remitted money back to their home country, the person would have been a valuable asset to the nation. However, people are choosing to exit their home country and are draining resources of their home country.

Overseas Loan Collateral Trapping

Mortgaging properties of the home country for overseas education loans is another major issue. During the loan period, these properties in the home country cannot be utilized for business expansion loans or sold for other business activities. After closing the loan in the home country, it would have been balanced if the individuals could take loans from foreign nations to invest in their home country. However, that does not happen in the case of Western nations, as Western nations want foreigners with work visas and student visas to live and spend money in their country only.

Major loan allocation by RBI and the banking system from its funds for overseas loans will affect the distribution of other categories of loans. 39,268.82 crore allocated in the last ten years for education loans to study abroad. Suppose this is not stopped within the next five years, i.e., within 2024-2028, more than 3 lakh Indians will apply for overseas loans annually.

When bank loan amounts are insufficient, people sell their properties and assets, such as gold in India, to fund overseas education. Therefore, it is essential to stop Indian students from leaving India, and government should provide opportunities for part-time jobs and premium quality education within India.

Classification of Non-Residents Based on Intent

The classification of non-residents for chargeback is not solely based on economic criteria. Instead, a person’s intent is measured in the classification process.

Intent-based Remitting Non-residents: Remitting non-resident is a remitting individual who does not intend to settle in a foreign nation and is expected to return to their home country after a certain period.

Intent-based Non-remitting Non-residents: Any non-resident who does not intend to return to their home country and engage in activities that drain their home country’s resources is called a non-remitting non-resident.

In the case of India, the remitting residents are Indians who are primarily employed in Africa, Asia, and South America. In addition, specific individuals in Western nations who do not intend to settle in these countries and remit to India can also be classified as remitting residents. All the remaining non-residents of North America and Europe are into gaining permanent resident status and citizenship.

Finding intent is essential for the chargeback principle.

All individuals other than job visas (dependent visa, student visa) should be excluded from the categorization of non-residents.

Some markers that can be used to classify people

1. Remittance transactions are significantly lower than the salary of a job in a particular nation.
2. Application to PR status of the foreign nation. Individuals may engage in draining their home country as PR is the final step towards renouncing the citizenship of their home country.
3. The number of visits and number of days spent in the home country.
4. The number of connections and relationships. If a person leaves the home country’s friends circle and family circle and reduces mobile contact to nil, they may not be interested in their home country’s affairs.

Why is Non-Resident Chargeback Critical for the Nation?

According to the Minister of State for External Affairs, Government of India, 17.5 lakh Indians have renounced Indian citizenship between 2011 to June 2023. So potential loss for the Indian economy in case their properties are sold can be pegged at 17.5 lakh crores if the value of one property is considered one crore. The high value is placed on property because people relinquishing citizenship are from the middle class and wealthy Indian population. This amount is higher than the GST income of India in one year. India will see this outward remittance at a massive scale soon when people will sell properties in India to purchase properties and meet expenses in other countries.

Aspirants living in foreign countries intending to forego citizenship in future are also giving up their properties in India. We already lost billions, and this trend is increasing year by year, and the losses created by such people will amount to another few lakh crores in the next few years. If they lose their job and do not get citizenship, they will have to return to India empty-handed, and the Indian economy is the loser here.

How can the Government Chargeback the Intent-Based Non-Remitting Residents?

Flag the ancestral/inheritance properties that are on the potential list for sale. Ensure special taxation procedures for such properties so that the drain of the home country is reduced to a minimum.

Education benefits received till the 12th level will be excluded. All other benefits accrued should be returned to govt before renouncing citizenship.

Income tax benefits received yearly should be returned, and pending income tax filing should be cleared.

If a person renounces citizenship without paying liabilities, the individual’s assets in India should be frozen. If the person has sold the assets before giving up citizenship to circumvent the law, the person should be declared a financial offender, and details of the person should be publicly distributed.

High taxes above 75 per cent should be imposed after they clear all their dues if they want to claim ancestral/inheritance properties. There will be an oversight authority that will determine if they are eligible to sell the ancestral/inheritance property. The sanction to sell should be provided only after clearing the liabilities, such as education merit seat liability. Properties sold at one place and bought at another will also be treated as ancestral/inheritance property.

A 75 per cent tax on ancestral/inheritance properties should apply to people without liabilities or if data is unavailable. 

Non-resident Income Channelling

It refers to the channelling process that ensures the socioeconomic responsibility of non-residents towards their home country. It includes measures such as income channelling and taxation.

Consider the following scenarios

Scenario 1

When an Indian leaves the country and works in a foreign nation, it is the responsibility of India to ensure that any individual grievances of that person are communicated with the foreign nation. In war-like situations, the Indian government is responsible for returning citizens from such countries to their home country. However, the services provided are borne out of the government’s pocket. Income earned by non-residents outside India is not taxable under income tax. However, there is a need for financial accountability towards the home country without losing their money.

Scenario 2

The non-resident sends 1 lakh per month regularly to their home country. The money is used to build a large house, buy luxury products, and large cars. After doing this, the person will save another 12 lakhs a year and return to India to start a business here.

The problems associated with scenario 2 are

The government is happy because inward remittance benefits the economy, and the money is spent inside India. But, in reality, it changes the socioeconomic composition of their region. For example, one person builds a large house, and when money is channelled into a luxurious life, that person’s neighbours and relatives also want to do the same in their lives. So, the people around non-residents take loans to buy cars and build large homes. It also changes construction materials’ prices and wages, making it costlier for low-income people to build smaller homes.

If the non-resident returns and the business run by the returnee ends up in a loss, it will be a disaster for the person. When income does not match a luxurious lifestyle, it will be devastating for the social standing of non-residents. Most people start businesses that already exist and are at saturation, which is why most businesses fail to give good returns.

Government cannot stop people from building large houses or buying luxurious goods. However, the government can engage in channelling a portion of disposable income that can be utilized to benefit the person in the future.

NRI Income Channelling and Investment in India

Creating pathways for financial discipline for non-residents and resident Indians will help to channel money flow. In addition, channelling money to new arenas that provide returns on investment will boost the economy’s health and create employment opportunities.

Non-residents should compulsorily file the income tax and pay a minimal amount, such as 1000 rupees annually, via the embassy or online for filing. A government-sponsored agent will assist them in filing the income taxes. In the case of non-filing, there will be a penalty initially, and continuous non-filing for more than one year will result in the cancellation of the passport.

A small percentage of their salary, such as 10 per cent of their salary amount after paying taxes in foreign nations, should be invested in India. Failure to invest in India will result in charging income tax which was earlier cancelled for NRIs. Investment in India can include any type the government mentions, such as physical assets, share purchases, or business investments.

Non-Resident Income Channelling is essential to increase investments in Indian businesses. NRIs cannot cash out their investments if they continue to be NRIs, and once they return permanently, they can cash out. If they return after cashing out and sending the money as outward remittance, they will be asked to return it as income tax, and there will be passport cancellation in case of failure to address the issue. The money is meant to be used within India and not for spending outside India.

Special Note: This is the twenty-third chapter of the book New India Manifesto by Blessen T. Sam. The concepts introduced in this book are unique, and referencing the book and the author is appreciated. Support the hard work of the author to modernise India by purchasing a print copy of the book from Amazon or Flipkart.