NEW DELHI – The Government of India announced April 22 imposition of a flat 5% tax on all NRIs over their world-wide income.

Income that is already taxed in India has been kept out of the purview to avoid double taxation. No double taxation benefits would be available for this 5% tax, meaning even if you are paying tax on your income in a country with which India has double taxation agreement, the benefit would not be allowed against this 5% tax.

All those Indians who are holding Indian Passports and have been out of the country for more than 180 days during the year are under this requirement. Income proof would have to be submitted in form of employer certificates, foreign tax filings etc.

The Indian government is also coordinating with Australia, Europe, America, UAE and other countries on collecting Income data for its citizens as part of data sharing initiative on terror prevention measures.

This has been hailed as bringing in compulsory participation in development of India from Non Resident Indians.. This means NRIs can no more just continue to retain their Indian citizenship without paying taxes in India. Though  it may not be favorable in view of the NRIs who already bring substantial foreign exchange in form of remittances and investments.

This is bound to cause a lot of heart burn for the Indian community residing outside.This is expected to generate ~10 Billion INR tax collection for the government in the year 2009-10..

For more information on this rule, tax filings and forms visit http://www.incometaxindia.gov.in/