Why India’s New Tax Regulation Change Might Impression UAE Companies

A new provision introduced in India’s 2021 budget is likely to hit companies that have NRI-owned group companies in countries like the United Arab Emirates.

The United Arab Emirates and some other countries that do not levy income tax on individuals are used by several Indian businessmen to avoid paying taxes in India. They claim they are entitled to exemptions under the bilateral double taxation avoidance treaty among non-resident Indians (NRI). Status.

The United Arab Emirates and India have had a double taxation agreement (DTAA) since 1992.

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A recent change in Indian tax laws has redefined the term “taxable” effectively ending this practice, a tax expert told Arabian Business.

They said the move will affect Indian companies that have NRI-owned group companies in countries like the United Arab Emirates that are actually operated out of India.

However, NRI business people who actually reside in the UAE or other such countries are not affected.

“Currently the law does not define the term ‘taxable’ in Section 6 in relation to the residence rule of the IT Law. Now it is proposed that the term “taxable person” … be defined as a person who is taxable under the law of a country and includes a case where an exemption has been provided after the introduction of such a tax liability ” Rahul Garg, tax expert and partner at PwC India, told Arabian Business.

“This would affect the taxation of people who have double taxation treaties with countries like the United Arab Emirates,” Garg said.

Rahul Garg, tax expert and partner at PwC India

The change will take effect from the current financial year, which runs until the end of March, and will apply in subsequent years.

Garg said that although the amended tax law allows such businessmen to claim exemptions after paying taxes because there is no income tax in countries like the United Arab Emirates, such exemptions cannot be claimed under DTAA.

“Indeed, the new change could bring down the curtain on this practice,” Garg said.

Trade organization officials said they expect some NRI associations to make statements to India’s Treasury Department against the move.

Experts said that some business people who live in India for more than the 180 day period set by the NRI definition are claiming NRI status because their families reside in those countries and therefore according to certain court rulings in India under the DTAA Tax exemptions claim past.

“However, the current change will allow tax officials in India to fill the gap in this regard,” said Garg.

So far, the term “taxable” has not been clearly defined. As a result, the tax officer used a variety of other mechanisms to handle such cases. According to tax experts, some of these exclusively affected Indian citizens living in the UAE.