How UAE NRIs don’t pay Tax on Indian Mutual Funds

Let’s understand how being a UAE Resident can help you in saving a lot of Tax on Capital gains Income of Mutual Fund

As per the India-UAE DTAA, such capital gains from Mutual funds are to be taxed in the UAE

The ITAT asserted that mutual funds in India are created as trusts and not companies under the Securities and Exchange Board of India (SEBI) regulations.

The term “share” is not defined in the DTAA, and mutual fund units are not treated as shares under the Companies Act and hence cannot be taxed in India.

Good Thing is that the UAE doesn’t tax Capital Gains

As the UAE is a tax-friendly country, there is no Tax on Capital Gains in the UAE.

Exemption Available on

So this exemption applies to LTCG/ STCG, Equity and Debt Mutual Funds
Since the judgment clearly distinguishes between mutual fund units and shares for tax treatment. No Such exemption is available for shares of an Indian Company as they will be taxed in India.

How to claim Exemption?

You can invest in Mutual Funds via NRE/NRO Account
Obtain the TRC to get the DTAA benefit
Apply for Form 10f on the Income Tax Portal
Mutual Funds Deduct TDS in case of Capital Gain. You need to file ITR to file ITR to claim a Refund
You may need Form 15CA/15CB for repatriation of funds

Other Countries that can claim this benefit:

Singapore
Mauritius
Malaysia
Oman
Qatar
Saudi Arabia
Kuwait
Bahrain

Who is a Non-Resident as per the Income Tax Act?

Residential Status Criteria for Individuals

An individual is treated as a resident in India if they satisfy either of these two conditions:

Stay in India for 182 days or more during the relevant financial year, OR
Stay in India for 60 days or more during the relevant financial year and 365 days or more in the four preceding financial years.

If neither of these conditions is satisfied, the individual is considered a non-resident.

For a person leaving India for a job abroad:

If the person leaves India for the purpose of employment outside India (or as a crew member of an Indian ship),
Then the 60-day rule is relaxed to 182 days.

Meaning: If they stay in India for less than 182 days during the financial year, they will be treated as a Non-Resident.

Possible Tax Litigation Alert:

This is a litigious issue. File an appeal with CIT(A) in case your refund is rejected or you get an Income Tax Notice at a later stage!