Income Tax for NRIs in UAE-New Amendments w.e.f 1st April
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As an NRIs in UAE, you are exempted from paying income tax in UAE. You do not have to pay any tased on your UAE Income in India too, under the UAE-India Double Taxation Avoidance Agreement. However, you must pay taxes on any income earned form investments in India. You must also stay up to date with the amended tax laws for NRIs and the FEMA guidelines for what constitutes you as an NRI.
The Indian government has very clear taxation laws, and all Indians, including Non-Resident Indians, are also liable to pay taxes. April 2021 ushered in an amendment of taxation laws in India. As an Indian living abroad, you still need to pay income taxes for any income made in India. If you are an Indian living in the UAE and confused about the new Indian income tax laws, this article will help you understand what implications the recent amendments have.
Income Tax Payment
As a resident of the UAE, you enjoy exemptions from paying any income tax in your resident country. As a Non-Resident Indian, you will not have to pay income taxes in India unless your income is accrued in India or through an organisation operating within India.
The 2021 amendment of Indian tax laws brought about many changes; however, income tax for NRIs in UAE remains exempted.
India-UAE DTAA And NRI Tax Implications
Income tax for NRIs residing in UAE is exempt under the India-UAE Double Taxation Avoidance Agreements (DTAA). As per the rules of the DTAA, NRIs paying taxes on their income and investments in their country of residence are exempted from paying taxes on the same income and investments in India too. Now, UAE does not levy taxes on its residents, whether citizens or foreign nationals living there. As such, you do not have to pay taxes on your UAE income, nor will the Indian government tax you on income earned in UAE(1).
Even if you travel between UAE and India frequently and spend time in India, you do not have to worry about income tax in India. The new amendment of the Indian tax laws in 2021 has brought about changes concerning duty-free quota rules for India-bound passengers. You can be relaxed about the income tax for NRI in UAE as the Income Tax department has not any new made changes or amendments in this area of the rules.
Residency Status Rules You Should Know
You should understand the status of your citizenship and check whether you fall under the category of an NRI or not. The Foreign Exchange Management Act (FEMA) has specific criteria which decide whether an Indian qualifies as a Non-Resident Indian or not. Tax for an NRI in UAE is exempted. However, if you still qualify as a resident Indian citizen, you will be taxed on your income.
The FEMA guidelines (2) which determine the resident status of an Indian citizen are:
- The person has resided in India for a period of at least 182 days during a financial year.
- The person has resided in India for at least 60 days in a year, the previous year or at least 365 days in the preceding four years.
- If an Indian citizen lives abroad or a Person of Indian Origin (PIO) stays in India for 60 days in a year and has also stayed in India for 365 days in the preceding four years, they will also be considered Resident Indian citizens. This criterion depends on their income in India. The criteria for citizenship will only get fulfilled if their income exceeds INR 15 lakhs in their year of residence.
If you cannot fulfil any of the above criteria, you will be considered a Non-Resident Indian (NRI).
If an Indian citizen has to leave India for employment, then they will be recognised as an Indian citizen only if they reside in India for at least 182 days during that period.
However, the 2021 tax laws amended the period which decides whether an Indian will be considered an NRI or not. The new rules state that an Indian citizen who resides in a country where they are not liable to pay taxes will be viewed as an Indian citizen(3). However, to be considered as such, the person requires to have an income of INR 15 lakhs or more in India.
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RNOR: Understanding The Resident But Not Ordinarily Resident Status
If you do qualify as a resident of India concerning the criteria mentioned above, then you can be classified as either a Resident Ordinarily Resident (ROR) or a Resident but Not Ordinarily a Resident (RNOR).
According to the Indian Finance Act, 2020-21(4), the conditions to be met to be considered as a ROR are as follows:
- The person has been a resident of India for at least 2 out of 10 immediate preceding years.
- The person has stayed in India for at least 730 days in the 7 immediately preceding years.
If you do not satisfy even one of the criteria above, you will be considered an RNOR.
The 2021 Amendments to the Finance laws also added the following concerning the ROR status of an Indian:
- A person will be considered a ROR if they leave India for employment but stays in India for 182 days or more. This criterion is applicable if the income of the person exceeds INR 15 lakhs (excluding any foreign source of income).
What Will Constitute As Taxable Income For An NRI?
If you have established your residential status as an NRI, you can still be taxed based on any earnings in India if you have any. As a resident of the UAE, you are exempt from any income you make abroad. If your earning in India crosses the mark of INR 2.5 lakhs, you are liable to pay income tax in India. The categories of taxable income(5) are:
- Income from professional consultations.
- Income from any housing property (a standard deduction of 30% is applicable).
- Income from a business in India.
- Income from dividends, gifts or NRO deposits in India.
- Revenue from the sale of assets in India (includes equity investments, mutual fund units, property, etc.).
Deductions Of Tax For An NRI In UAE
As an NRI in UAE, you can still avail of tax exemptions for income in India. Under Section 80C(6) of the Income Tax Act in India, an NRI can avail of income tax deductions of up to INR 1.5 lakhs. The available deductions under Section 80C are:
- Payment of Life Insurance Premiums.
- Repayment of loan for a property purchase.
- Tuition payment for children.
- ELSS investments,
If you qualify as an NRI in UAE, you can enjoy the benefits of the DTAA and be exempted from income tax liabilities on your UAE Income. You must also read up about the changing tax laws in India, especially if you have any income sources or investments earning returns, here. Be sure to maintain your NRO and NRE accounts carefully to handle your transactions between UAE and India.
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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.
The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.