NRI taxation,Form 13 and UAE

Residential status comes first

Whether India can tax a particular income usually turns on residential status, which is determined under Section 6 of the Income-tax Act by the number of days spent in India across the relevant years — not by where you hold a passport or a visa. Getting this wrong is the most common reason an NRI return has to be revised later.

A non-resident is charged to tax in India on income that arises in India or is received here — rent from Indian property, capital gains on Indian shares or property, interest on certain accounts — while foreign income generally stays outside the Indian net.

Treaty relief

Where the same income is taxable in India and in the country of residence, a double taxation avoidance agreement can reduce the Indian charge or relieve it altogether. India has such an agreement with the UAE, as with most countries where Indian families are settled. Claiming it in practice means holding a tax residency certificate from the other country and reporting the claim correctly in the Indian return.

Lower deduction certificate — Form 13

Tax on payments to a non-resident is deducted at source under Section 195, and on a property sale it is deducted against the whole sale consideration rather than against the gain. The result is routinely far more tax withheld than is actually owed, recoverable only as a refund a year or more later.

A certificate under Section 197, applied for in Form 13, authorises deduction at a lower or nil rate instead. The application is made before the transaction, supported by a computation of the real liability. The firm prepares and files these, and deals with the queries the assessing officer raises on them.

• Sale of Indian property by a non-resident seller
• Rent and interest paid to non-residents
• Payments to non-resident group entities and service providers

Repatriation

Moving funds out of India is a documentation exercise as much as a tax one. Remittances are supported by Form 15CA and, where required, a chartered accountant's certificate in Form 15CB — which the remitting bank will ask for before it processes anything.

UAE incorporation, and the Indian side of it

A UAE entity can be set up on the mainland or in a free zone, and the choice affects ownership, where the entity may trade, and its position under UAE corporate tax. The firm advises on the comparison and handles the incorporation.

The part that is more often missed is the Indian side. Where an Indian resident or an Indian company holds the UAE entity, there are exchange control requirements under FEMA and overseas investment reporting to complete, and the structure interacts with Indian tax on dividends and on the eventual exit. Both sides are handled together rather than in sequence.