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April 20, 2021

For NRI Residing In Countries Where There Is No Income Tax (UAE Residents) – Clear Understanding Of The Applicability Of Deemed Residency Taxation Concept In India.

FOR NRI RESIDING IN COUNTRIES WHERE THERE IS NO INCOME TAX (UAE RESIDENTS) – CLEAR UNDERSTANDING OF THE APPLICABILITY OF DEEMED RESIDENCY TAXATION CONCEPT IN INDIA.

▶️ In the Finance Act 2020, the government announced that persons who are not ‘liable to tax’ (not subjected to any Income Tax law) in country of their residence, will be deemed to be Indian tax residents for the purposes of Income Tax if they satisfy the following two conditions:

i) Their Any Indian Incomes + Foreign incomes from Business controlled or Profession setup in India exceeds Rs.15 lakhs during the year.

ii) They do not become tax residents of any country in the world having an Income Tax law due to their physical stay (residence) or domicile or any similar reason.

▶️ There have been news articles suggesting that Non-Resident Indians (NRI) based in UAE and other countries where there is no Income tax can escape the above provisions since they have some incomes in other countries on which they pay some income tax. Copy of the one such article is attached herewith with appropriate markings.

▶️ Our view differs from that expressed in the news articles. We believe that the second condition of the new definition referred above would not get satisfied if a person has some income in other country on which income tax is paid since the new law would be applicable if the person is a resident or domicile of that country.

▶️ Hence, a person who is a resident or domicile of a country where there is no Income Tax law (E.g. UAE) will not escape from becoming the Indian Tax resident in India under the new provisions by simply having some income chargeable to income tax in some other country (E.g. U.K.).

▶️ Most of the NRI need not worry about these provisions as even if the two conditions referred above are satisfied, the NRI will be liable to tax only from Any Indian incomes and Foreign incomes from Business controlled or Profession setup in India and not on the foreign sourced incomes.

▶️ However, the NRI will have to file his/her Indian Income Tax return in the status of Resident But Not Ordinarily Resident status in such cases.

▶️ Please reach out in case of any further clarification.

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