A Non-Resident Indian charitable body has urged Prime Minister Manmohan Singh not to tax income from NRI deposits saying such a move will be a big blow to the Indians in the Gulf, majority of whom are from low income groups.

In a letter to the prime minister and Finance Minister P Chidambaram and to several Members of Parliament, the Pravasi Bandhu Charitable Trust recalled that the NRIs, particularly in the Gulf, had come to the rescue of the government when it was in need of foreign exchange.

• Tax interest on NRI deposits: RBI panel

"Now we have very comfortable foreign currency reserves to the tune of $118 billion. Seeing the current situation, the Reserve Bank of India is proposing to tax interest income on NRI deposits. The Trust appeals the prime minister not to tax interest income on NRI deposits."

"We hope the new government will not take such a step which will be a major drain on the hard earned savings of the NRIs from the Gulf," the letter said.

The letter also urged the prime minister to extend the benefit of Double Taxation Avoidance Agreement to Non-Resident Indians living in Oman, Qatar and the United Arab Emirates. Under the agreement, the capital gains arising from redemption of units are taxable only in the GCC countries and not in India, K V Shamsudheen, the chairman of the Trust said.

He also appealed to Manmohan Singh to open up the skies in the Gulf sector so that low budget airlines can operate.