Can an NRE/NRO account be linked to the UPI Payment system?

Question: Can an NRE/NRO account be linked to the UPI Payment system? Many non-resident Indians when they come to India find it expensive to use international credit cards. I understand that only Indian bank accounts with Indian mobile numbers can be linked to UPI.

ANSWER: With effect from May 1, 2023, NRIs based in ten countries, namely, the UAE, UK, USA, Oman, Qatar, Saudi Arabia, Australia, Canada, Singapore and Hong Kong, will be able to access their Non-Resident (External) accounts. The National Payments Corporation of India has extended the Unified Payments Interface (UPI) facility to NRIs who are based in these countries. This will allow international numbers from these countries to be used. Banks have been directed to be ready by 30th April this year so that international numbers will be able to transact on the UPI platform. This would provide the facility to NRIs and overseas Indians resident in these ten countries to purchase goods and services when they visit India and transact with millions of Indian merchants who are currently on the UPI platform.

Question: Many companies in the UAE have been providing technical services to Indian firms. When the fees are remitted from India, tax is deducted at source. I am told that the withholding tax on such fees and royalties has been increased from this month. What would be the implications?

ANSWER: With the Finance Act, 2023 coming into force from April 1, 2023, the withholding tax on royalties and technical services fees payable to non-resident entities has been raised from 10 per cent to 20 per cent. The implications would be that the costs for the Indian party remitting the fees or royalties to a non-resident would go up if the Indian party grosses up the withholding tax in case it is required under the agreement to bear the Indian taxes. However, if the foreign entity belongs to a country with which India has a Double Tax Avoidance Agreement (DTAA) and the rate provided under that agreement is less than 20 per cent, such lower rate of tax would be applicable. To deduct the lower rate of tax as per the DTAA, it would be necessary for the foreign entity to obtain a permanent account number, furnish the tax residency certificate from its country of residence and file the tax return in India to enable it to claim the benefit of the lower rate of tax under the DTAA.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

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