NRIs Income Tax in discussion!

Great news has been announced in order to create a more flexible atmosphere for Nonresident Indians in the UAE, especially those who are pursuing a business setup in the UAE or a company formation in the UAE. For those Indian entrepreneurs resident in the UAE, who wanted to pursue business set up in the UAE, it is in a discussion that not only the United Arab Emirates but also working in income-tax-free jurisdictions will only have to pay tax for the income gained in India and not in any other Jurisdictions. The statements of the Indian finance minister include that NRIS working in income-tax-free jurisdictions would not have to pay tax on their earnings outside India once it is finalized.

The Finance Bill, 2020 provision states that an Indian nationality holder, who is not liable for taxation, is ideally taxed in any other country or territory is considered a resident of India. Leading to concerns that Non-resident Indians working in states and countries that do not apply personal income tax might be subject to income tax in India on their worldwide earnings, leaving less money in their hands.

The Indian ministry of finance ministry stated as well that an Indian citizen, who becomes a resident of India within the effectiveness of the provision in the Finance Bill, would not be taxed for the income made outside of India unless it is earned from an Indian based business.

This would be full-of-opportunities news for many non-resident Indians who work in different jurisdictions, especially those who wanted to invest. Business setup in Dubai has always been an attractive step on the career path of many of the young ones. With all the facilitations to be availed for expats and with many hopeful Indian entrepreneurs wanting to follow the steps of the –now- market tycoons, this news would be like a green light for them.

Why would Indians residing in the UAE benefit from the changes in the finance bill?

As per the clarification from the Central Board of Direct Taxes (CBDT), only Indian income from Indian assets invested in Indian business with incomes earned would be taxed and income earned outside India would not be taxed.

Taking a UAE free zone company formation as an example, if a non-resident Indian is investing in this type of company he enjoys the benefits:

  • Strategic location with easy access to big markets and skilled workforce.
  • Variety of businesses
  • 100% ownership
  • 100% return on profit
  • 0% Personal income tax

Moreover, with the new bill refinement, this means that the business and the business owner would not be taxed. A new Section, 6(1A), has been proposed, whereby an Indian citizen is acknowledged as a resident in case that person:

  • Is not liable to tax in any other Jurisdiction or country by reason of residence
  • Is not liable to tax in any other Jurisdiction or country by reason of domicile
  • Is not liable to tax in any other Jurisdiction or country because of a criterion of similar nature.
  • Is not liable to tax because his global income is not subject to tax in India due to lacking the minimum marginal rate.

In light of this provision, many NRIs stand a great opportunity of investing and not having to comply with personal income tax. Further clarifications are to be announced from the Indian ministry of finance in such regards.

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