How Indian residential status is decided -- the day-count rules
Per the Income Tax Department's own guidance, an individual is a Resident of India in a
tax year if they meet either of two tests: (a) present in India for 182 days or more in that
year, or (b) present for 60 days or more in that year AND 365 days or more
across the preceding four years. Anyone who fails both tests is a Non-Resident (NRI) for
that year.
Special relaxations that matter for people based in the UAE
- Indian citizens leaving India for employment abroad are tested only against the
182-day rule for that year -- the 60-day alternative does not apply to them.
- Indian citizens/PIOs visiting India (based abroad, visiting) are also generally
tested against 182 days, EXCEPT that a 120-day rule applies instead of 60 days if the
person's total Indian-sourced income exceeds ₹15 lakh in that year.
The Deemed Resident rule -- specifically relevant to UAE-based NRIs
Section 6(1A) of the Income Tax Act deems an Indian citizen with more than ₹15 lakh of
Indian-sourced income to be an Indian resident, regardless of days spent in India, IF that person is not
liable to tax in ANY other country or territory by reason of domicile, residence, or a similar criterion.
This provision was specifically aimed at closing a “stateless for tax purposes” gap -- and
because the UAE does not levy personal income tax, high-income Indian citizens based in the UAE are exactly
the population this rule was designed to reach, more so than NRIs in countries that do tax individuals. A
UAE-based NRI with substantial Indian-sourced income should specifically check whether this deeming
provision applies to them, since it changes their Indian tax treatment even without meeting the ordinary
day-count residency tests.
What is actually taxable in India as an NRI
As a Non-Resident (and for a Deemed Resident, on income taxable under the deeming provision's specific
scope), Indian tax applies to income that arises or is received in India: rental income from Indian
property, capital gains on Indian assets, interest on NRO accounts (interest on NRE/FCNR accounts is
tax-exempt while non-resident status is maintained), and any Indian business/professional income. Since the
UAE itself does not tax salary or most personal income, there is typically no UAE-side income to report or
offset in the first place.
The India-UAE DTAA -- what it actually covers for a UAE-based NRI
India and the UAE have a bilateral Double Taxation Avoidance Agreement. Because the UAE does not levy
personal income tax, the DTAA's practical relevance for most UAE-based NRIs is narrower than for NRIs in
countries that do tax individuals -- there is usually no UAE tax on the same income to credit against. The
DTAA remains relevant for withholding-tax rates on cross-border payments (dividends, interest, royalties)
and for tie-breaker rules in less common situations. The India-UAE Comprehensive Economic Partnership
Agreement (CEPA, in force since 2022) is a separate trade agreement and does not itself change individual
income-tax treatment.
Filing an Indian tax return as an NRI
An NRI must file an Indian Income Tax Return if their total Indian income exceeds the basic exemption
limit, or in certain other specified situations -- including where the Deemed Resident provision applies.
NRIs typically use ITR-2 or ITR-3 depending on the nature of their Indian income, and should check the
current assessment year's exemption limit and filing rules before filing.
Since the UAE doesn't tax my income, do I still need to file anything in India?
Yes, if your Indian-sourced income exceeds the applicable Indian filing threshold, or if the Deemed
Resident provision applies to you -- the absence of UAE tax does not remove Indian filing obligations on
Indian-sourced income.
Does holding an OCI card make me an Indian tax resident?
No. Residential status for tax purposes depends entirely on physical presence (day-count) in India during
the relevant year under Section 6, or on the specific Deemed Resident criteria -- OCI status by itself does
not make someone a tax resident.
Who exactly does the Deemed Resident rule apply to?
It applies to Indian citizens (not OCI cardholders) with more than ₹15 lakh of Indian-sourced income
in a year who are not liable to tax in any other country by reason of domicile, residence, or a similar
criterion in that year -- a description that fits many UAE-based Indian citizens given the UAE's lack of
personal income tax. It does not apply to someone genuinely tax-resident elsewhere.
Is NRE account interest really tax-free in India?
Yes, interest earned on NRE (Non-Resident External) and FCNR accounts is exempt from Indian income tax as
long as the account holder retains non-resident status under FEMA -- NRO account interest, by contrast, is
taxable.
