For Non-Resident Indians (NRIs) living in the United Arab Emirates (UAE), tax planning can be both straightforward and highly rewarding, thanks to the region’s zero-tax regime and India’s Double Taxation Avoidance Agreement (DTAA) with the UAE.
While residents enjoy tax-free incomes in the Gulf nation, careful financial management is still required to navigate Indian tax laws, especially when income originates in India.
No Income Tax In The UAE
The UAE does not levy personal income tax on its residents, including foreign nationals. This means that salaries, business income, capital gains and investment returns earned in the UAE are completely tax-free locally. Even better, the India-UAE DTAA ensures that income earned in the UAE is not taxed again in India, providing genuine relief for Indian professionals and entrepreneurs who have made the Emirates their home.
This tax-friendly environment makes the UAE attractive for high-net-worth individuals, business owners and investors seeking to grow their wealth without the burden of personal income tax, capital gains tax, or surcharges on higher income.
Taxation In India For NRIs
The NRIs are liable to pay tax on the income generated in India. Under Indian tax laws, NRIs must pay tax on income that arises, accrues, or is received in India in a financial year. This includes rental income from property, interest earnings from fixed deposits, dividends and capital gains from mutual funds or stock trading.
The Indian government amended the tax code in April 2021, introducing stricter definitions of who qualifies as an NRI. To retain NRI status, individuals must now spend fewer than 182 days in India during a financial year. NRIs must also comply with FEMA guidelines, which govern foreign exchange and overseas transactions.
Capital Gains Exemptions And Loopholes
The UAE’s zero-tax status combined with the DTAA can make certain incomes tax-free for NRIs. For example, a recent report highlighted how some NRIs have avoided paying capital gains tax on mutual fund redemptions by relying on tax treaties and their overseas residency status.
One instance was flagged by Nilesh Shah, managing director of Kotak Mahindra Asset Management Company, who pointed out in a post on X that India’s capital gains framework allows “seasonal non-residents” to shift tax residency to the UAE and legally sidestep capital gains taxes. Citing a recent Income Tax Appellate Tribunal (ITAT) ruling, he called for urgent reform to close such gaps and ensure tax is paid in the host country, with credit taken in the reciprocal country.
To further streamline their finances, NRIs also make effective use of NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts.
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NRE Account: Designed to manage foreign earnings, an NRE (Non-Resident External) account offers full tax exemption in India and allows free repatriation of both principal and interest. It is ideal for depositing income earned abroad, such as salaries received in the UAE.
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NRO Account: An NRO (Non-Resident Ordinary) account is used to handle income generated within India — such as rent, dividends, or pension — and is subject to Indian taxes, including TDS and other applicable levies.
In conclusion, while the UAE’s tax structure offers a lot of benefits, NRIs must remain compliant with Indian regulations to avoid penalties. By staying updated on tax laws, using appropriate bank accounts and consulting financial advisors familiar with cross-border taxation, NRIs in the UAE can legally reduce their tax burden while making the most of both jurisdictions.
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