Deemed Residency: The ₹15 Lakh Rule for Indians Who Aren’t Taxed Anywhere

Since 2020, Indian tax law has had a rule aimed at Indian citizens who live in countries with no income tax (such as the UAE, Bahrain or Qatar) while earning substantial income in India. It is called deemed residency. It continues under section 6 of the Income-tax Act, 2025. Here is who it affects and what it really means.

The rule

An Indian citizen is treated as resident in India for a tax year, regardless of the number of days spent in India, if both conditions are met:

their total income, excluding income from foreign sources, is more than ₹15 lakh in that year, and
they are not liable to tax in any other country because of where they live or are domiciled.

A deemed resident is always classed as Resident but Not Ordinarily Resident (RNOR).

What does “income other than from foreign sources” mean?

Broadly, this is income earned in India: Indian rent, NRO interest, Indian capital gains, dividends from Indian companies, and income from an Indian business. Foreign salary and foreign investment income are excluded from the ₹15 lakh test. Income from a foreign source that comes from a business controlled in India or a profession set up in India is not treated as foreign-source income for this purpose.

Who is affected?

Indian citizens (not OCI cardholders or foreign citizens)
living in countries that do not tax individuals, such as the UAE, Bahrain, Qatar, Kuwait, Oman and Saudi Arabia, or who are otherwise not tax resident anywhere
with Indian income of more than ₹15 lakh, for example from large rental income, big capital gains or business profits in India

Note: people who move between countries and never stay long enough to become tax resident anywhere may also be caught.

What happens if you are a deemed resident?

Because a deemed resident is RNOR:

Indian income is taxable, as it would be for an NRI anyway.
Foreign income is NOT taxable in India unless it comes from a business controlled in India or a profession set up in India.

When the rule was introduced in February 2020, the Ministry of Finance and CBDT clarified that it is not intended to tax Indian citizens who are bona fide workers in other countries, including the Middle East, on what they earn there. Your Dubai salary is not taxed in India just because you are deemed resident.

Practical effects

Even though foreign income is not taxed, deemed residency can change:

the way you report residential status in the ITR
your entitlement to NRI-specific provisions and to treaty claims
some TDS and reporting positions with banks and payers

The ₹15 lakh limit also changes the day-count test

Separately, for Indian citizens and PIOs who visit India, if Indian income is above ₹15 lakh, the 60-day residence test becomes 120 days (with 365 days over the previous four years). A person who becomes resident only because of this rule is also RNOR. Read this together with the deemed residency rule. Full details are in the first article of this series.

Does a UAE Tax Residency Certificate help?

A UAE TRC shows you are tax resident in the UAE. Whether this means you are “liable to tax” there, given the UAE has no personal income tax, has been debated. Courts and tribunals in treaty cases have taken different views on what “liable to tax” means. Holding a valid TRC (a) is required for treaty benefits and (b) helps show that you are resident in another country. Get professional advice for your specific facts.

Planning points

Watch your Indian income each year: rent, interest, and especially one-off capital gains from selling property or shares, which can push you over ₹15 lakh in a single year.
Keep proof of foreign residence: TRC, residence visa, Emirates ID, lease.
Plan large Indian asset sales knowing how they may affect your residential status.

Frequently asked questions

I work in Dubai and earn ₹20 lakh a year from Indian rent. Is my UAE salary taxable in India?
You may be a deemed resident (RNOR), but your UAE salary for work done there is not taxable in India. Only your Indian income, including the rent, is taxed.

Does deemed residency apply to OCI cardholders?
No. It applies only to Indian citizens.

Is ₹15 lakh measured before or after deductions?
The test looks at total income (other than foreign-source income) as computed under the Act, after the deductions allowed when computing total income. Get your figures checked by a professional.

Has the rule changed under the 2025 Act?
No. The Income Tax Department’s NRI FAQs confirm the deemed residency provision is retained.

Living abroad with significant Indian income? Garvita Jain & Co. reviews deemed-residency exposure, plans asset sales and files your returns with the correct status. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of October 2026 and is not professional advice.

Sources

Official

Professional / CA publications