As many of you know, the UAE ordinarily doesn't tax personal income. For Indian citizens living in the UAE, they face a unique situation with their income earned from India.
Understanding Deemed Residency
India has a rule called deemed residency. If you're an Indian citizen and your income from India exceeds ₹15 lakhs in a financial year, you may be treated as a resident for tax purposes wherein you are not liable to pay tax in another country However, even then, your status will be Resident but Not Ordinarily Resident (RNOR), meaning you'll only be taxed in India on:
Income earned from India, or
Income received in India
This situation has always existed, but it's more significant now due to recent budget changes that have increased tax rebates for residents. Let me explain with examples and highlight the budget's impact.
Example 1: Income Above ₹15 Lakhs
Dividend: ₹6 lakhs
Bank Interest: ₹2 lakhs
Capital Gains: ₹7.5 lakhs
Total Income: ₹15.5 lakhs
Since your Indian income exceeds ₹15 lakhs, you're considered a resident for tax purposes. Previously, you had to pay tax without the benefit of any rebate, but the recent budget changes offer a significant advantage due to increased rebate:
Dividend and Bank Interest: Taxed at regular slab rates with a rebate under Section 87A (no tax if total income is up to ₹12 lakhs).
Capital Gains: Taxed at special rates.
Tax Outcome: You pay tax only on the capital gains of ₹7.5 lakhs.
Example 2: Income Below ₹15 Lakhs
Dividend: ₹6 lakhs
Bank Interest: ₹1 lakhs
Capital Gains: ₹7.5 lakhs
Total Income: ₹14.5 lakhs
With income below ₹15 lakhs, you're a Non-Resident for tax purposes:
Dividend: Taxed at a special rate (no rebate under Section 87A).
Bank Interest: Taxed at regular slab rates
Capital Gains: Taxed at special rates.
Tax Outcome: You pay tax on both the dividend (₹5 lakhs) and capital gains (₹7.5 lakhs).
The Peculiar Advantage
Interestingly, in some cases earning more than ₹15 lakhs can sometimes result in lower tax liability due to the rebate under Section 87A, which non-residents cannot claim. This can make earning a bit more beneficial.
Conclusion
For Indian citizens in the UAE, understanding Indian tax rules is crucial. Your income level, type of income, and residency status can all impact your taxes. Sometimes, earning slightly more can actually reduce your tax liability in India due to available rebates.
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