In the dynamic and interconnected world of finance, taxation intricacies typically pose distinctive challenges. For high-net-worth Non-Resident Indians, notably these within the UAE, these complexities can have important implications. Mark Smallwood, Engagement & Consultant Partner at Hubbis, delves deep into the tax considerations confronted by NRIs within the UAE who often go to India. He gives a complete understanding of the fiscal panorama that these people should contemplate, and the significance of meticulous planning in guaranteeing tax compliance.

Dubai, and the UAE usually, has turn into a haven for high-net-worth Non-Resident Indians (NRI) and their households. With flight occasions to Delhi, Mumbai and Bangalore below 3.5 hours and solely a 1.5-hour time distinction, the chance to maneuver residence to the UAE and doubtlessly scale back taxes considerably, is a really tempting proposition.

Notwithstanding this, with the lax pre-Common Reporting Standards days nicely behind us, and the efficient implementation of enhanced digitised immigration controls making the environment friendly monitoring of journey flows accessible on the press of a button, it’s vital to make sure that this planning is successfully executed because the implications for getting it unsuitable could be very critical.

To this finish the purpose of this text is to supply the NRI or potential NRI reader and their bankers or advisors with a abstract of the important thing elements to think about, which guarantee a place to begin for evaluation and affirmation with their tax advisors.

The Basics

The Indian fiscal or tax 12 months for people runs from 1st April to the tip of March of the next 12 months. Taxation relies on residential guidelines and relies on the interval by which the person is bodily current in India.

A tax resident of India is taxable on their worldwide earnings and property, and the reporting necessities and disclosures of pursuits are very complete certainly.

The Complexities

To be resident for tax functions in India, a person is deemed to be resident in India if they’re bodily current for a interval of 182 days or extra within the tax 12 months (182 day rule), or if they’re bodily current for 60 days or extra within the related tax 12 months, and three hundred and sixty five days or extra in mixture within the 4 previous tax years (60 day rule). If none of those circumstances are met the person is deemed to be a Non-Resident in that tax 12 months.

For an individual who’s of Indian Origin (PIO), or an Indian citizen residing overseas and visiting India, or who’s an Indian citizen and leaves India for employment overseas, the foundations are barely extra liberal. So, for instance, an Indian Citizen who leaves India for employment as a member of the crew of an Indian ship or for taking employment overseas will solely be topic to the 182-day rule (the 60-day rule is not going to apply).

Similarly, if an Indian Citizen or PIO has taxable Indian sourced earnings of lower than INR1.5 million within the tax 12 months, and is resident outdoors India and visits India, then once more solely the 182-day rule applies. This is clearly designed to supply advantages to decrease earnings folks while capturing the high-net-worth NRI who’s backwards and forwards to India, usually retaining private and financial pursuits in India. They are captured by the rule launched on 1st April 2020, whereby an Indian Citizen or PIO resident abroad whose Indian sourced taxable earnings exceeds INR1.5 million in the course of the related 12 months will qualify as Indian resident if they’re bodily current in India for 120 days or extra in the course of the related 12 months and three hundred and sixty five days in the course of the earlier 4 tax years.

In the above situation there’s a break on condition that a person will qualify as being Resident however Not Ordinarily Resident (RNOR) if they’re resident for greater than 120 days however lower than 182 days. To be handled as RNOR (and as such being taxed on an identical foundation to a Non-Resident Indian), the person might want to have been non-resident in 9 out of the ten tax years previous the tax 12 months for which residential standing is being established OR their bodily presence is lower than or equal to 729 days in the course of the seven tax years previous the tax 12 months for which residential standing is being decided. If these circumstances are usually not met, they are going to be thought of to be Resident and Ordinarily Resident (ROR) in India (taxable on their world-wide earnings).

For the aim of computing bodily presence, it isn’t important for the presence to be steady or on the identical place. Furthermore, the date of arrival and departure will rely as full days.

Overriding citizenship-based residential standing

In addition to the above bodily presence-based residential rule, the legislation gives overarching catch-all provisions. It states that a citizen of India, having whole earnings, aside from the earnings from overseas sources, exceeding INR 1.5 million in the course of the tax 12 months shall be deemed to be resident in India if he’s not liable to tax in every other nation or territory by motive of his domicile or residence or every other standards of comparable nature.

This rule is supposed for an alien resident who doesn’t have a residential-based linkage with any Country. In such a state of affairs, he’s handled as an Indian resident liable to be taxed on worldwide earnings. This rule is of particular concern for worldwide employees and C suite executives who have to journey across the globe for work functions.

The Foreign Status

In addition to making sure that the foundations in India are adopted, it’s due to this fact additionally important for the NRI to have clear proof akin to a Tax Residency Certificate (Dubai) that they’re tax resident in UAE (or one other nation). For these residing in Dubai and the UAE usually this will trigger one other main tripping level. The India-UAE tax treaty gives that people can be resident within the UAE if they’re current within the UAE for not less than 183 days within the related calendar 12 months.  

In addition, these certificates are issued on an annual foundation, from the date of issuance, and it’s clearly essential that this era is co-ordinated with the Indian fiscal 12 months, and that the person renews the certificates in a well timed method for the next time interval.

The result’s that while the NRI, resident in UAE, is wholly targeted on the variety of days spent in India, in addition they should be targeted on guaranteeing qualification for the Tax Residency Certificate within the UAE, in any other case they are going to be unable to supply proof of their tax residence and the Indian authorities can have grounds to find out that they’re truly ROR in India.

Summary

Bhaumik Goda, previously of EY and a founding companion of BGSS & Associates (www.bgssassociates.com), and an advisor to UHNW households that straddle India, UAE and different components of the world, summarises the state of affairs completely nicely – “High Net Worth Indian Citizens and Persons of Indian Origin seeking to visit India regularly must maintain a detailed record of their visits and time spent in India. If they fail to do this and become tax resident, they will be required to disclose all information on all their income producing assets outside India, including trusts where they are a settlor, beneficiary or controlling person. The stakes are very high.”

The message may be very clear that in an more and more clear world with data available and accessible, it’s vital for high-net-worth Non-Resident Indians to rigorously plan with their tax advisors their journey preparations and that of members of their instant households to make sure not one of the journey wires are breached.