Taxation implications for Indian citizens residing in the UAE

Taxation implications for Indian citizens residing in the UAE under both Indian tax laws and UAE tax laws.

1. Section 6(1A) of the Indian Income Tax Act, 1961

Section 6(1A) was introduced in the Indian Income Tax Act to determine the residency status of Indian citizens who leave India for employment or other purposes. Here's what it states:

• Residency Rule for Indian Citizens:

  • An Indian citizen who leaves India for employment or as a member of a crew of an Indian ship is deemed to be a non-resident (NR) if they are outside India for 182 days or more in a financial year (April 1 to March 31).

  • If the individual is outside India for less than 182 days, they may be considered a resident for tax purposes in India.

Implications for Indian Citizens in the UAE:

• If you are an Indian citizen working in the UAE and stay outside India for 182 days or more in a financial year, you will be treated as a non-resident (NR) for Indian tax purposes.

• As a non-resident, you are only taxed in India on income earned or received in India (e.g., rental income, interest, or capital gains from Indian assets).

• Income earned outside India (e.g., salary in the UAE) is not taxable in India if you qualify as a non-resident.

2. UAE Taxation for Indian Citizens

The UAE is known for its tax-friendly regime, and Indian citizens working in the UAE benefit from the following:

a. No Personal Income Tax:

• The UAE does not impose personal income tax on salaries, wages, or other forms of employment income.

• This means your salary earned in the UAE is tax-free in the UAE.

b. Corporate Tax (Effective June 1, 2023):

• The UAE introduced a federal corporate tax of 9% on business profits exceeding AED 375,000.

• However, this does not apply to employment income or personal earnings.

c. Double Taxation Avoidance Agreement (DTAA):

• India and the UAE have a DTAA to prevent double taxation of income.

• Under the DTAA, if you are a tax resident of the UAE (i.e., you live and work in the UAE), your income earned in the UAE is not taxable in India.

• You may need to provide a Tax Residency Certificate (TRC) from the UAE to claim benefits under the DTAA.

3. Key Considerations for Indian Citizens in the UAE

• Residency Status in India:

  • Ensure you meet the 182-day rule to qualify as a non-resident in India.

  • If you are a non-resident, you only need to report and pay taxes on Indian-sourced income.

• Tax Residency in the UAE:

  • Obtain a Tax Residency Certificate (TRC) from the UAE Federal Tax Authority (FTA) to prove your tax residency in the UAE.

• Foreign Assets and Bank Accounts:

  • If you are an Indian resident or qualify as a Resident but Not Ordinarily Resident (RNOR), you may need to disclose foreign assets and bank accounts in your Indian tax return under the Foreign Asset Disclosure Rules.

• Income from India:

  • Income such as rental income, interest, or capital gains from Indian assets is taxable in India, even if you are a non-resident.

Summary

• Section 6(1A) of the Indian Income Tax Act determines your residency status in India based on the number of days you spend outside India.

• As an Indian citizen working in the UAE, you are not taxed in the UAE on your employment income.

• If you qualify as a non-resident in India, your UAE income is not taxable in India.

• Ensure compliance with Indian tax laws for Indian-sourced income and foreign asset disclosures.

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