Leading non-resident Indian (NRI) businessmen have raised concerns about the Indian government's move to tax services which include remittances to the country.

From July 1, all services in India will attract a 12.36 per cent service tax as the country implements a new taxation policy proposed in the government's budget for the current financial year.

An Indian government official declined to deny the change applied to taxation for remittances. "India is adopting a negative list approach from July 1," directorate of service tax director-general Sanghamitra Panda told the GDN from Mumbai.

Experts, meanwhile, say the new policy will have an adverse impact on NRIs who mostly send money to dependent families back home.

"India has moved from a selective mode of taxation to a comprehensive mode of taxation," said professional services firm KPMG partner Sachin Menon.

"An Indian survey found that 92 per cent of inward remittances are used for day to day purposes. This amount which is paid as a transaction fee will be taxed and passed onto the customer," he said from India.

Another implication of the new taxation policy will be a rise in the money transacted through the black market, he said.

"The impact is not minimal as there is a parallel economy running in India," he added.

"All these funds are unaccounted. With this service tax coming into the picture, all illegal transactions will appear cheaper and efficient. People will opt for this route.

"It is also an issue which will compromise the internal security of India," he added.

Inward remittances are a major feature of the Indian economy as exports have gone down, he said.

"Nowhere in the world are inward remittances taxed. It is a retrograde step as far as the economy is concerned. It is an injustice to non-resident Indians," he added.

Reacting to the policy change, Bahrain-based Indian businessmen were unanimous in opposing the move.

"It will be detrimental as there is a significant flow of money to the tune of $65 billion from the Middle East to India," said Islamic mortgage financing company Sakana Holistic Solutions chief executive R Lakshmanan.

"It is used to support families back home. They will be affected," he said.

Unemployment levels in India are likely to increase because of the rise in taxes, according to a banker.

"If they're going to tax remittances, it will discourage people to leave India and work abroad," said Standard Chartered wholesale banking finance manager Rahul Shah.

"The whole point of coming to the Middle East is to enhance saving.

"If the government is going ahead with the move, it is not going to be very encouraging," he added.

Meanwhile, the Bahrain Chapter of Institute of Chartered Accounts of India (BCICAI) said they were planning to write to the Indian government to exempt remittances from the new taxation policy.

"A request will be sent to the government to withdraw it," said BCICAI chairman T D Balraj from India.-TradeArabia News Service