Why India’s new tax law tweak could impact businesses in the UAE

Why India’s new tax law tweak could impact businesses in the UAE

A new provision introduced in India's 2021 budget is likely to hit companies which have NRI-owned group entities in countries like the UAE.

The UAE and some other countries, which do not levy income tax on individuals, are used by several Indian businessmen to avoid paying taxes in India, claiming they are eligible for exemptions under bilateral avoidance of double taxation treaties under non-resident Indian (NRI) status.

The UAE and India have a double taxation avoidance agreement (DTAA) in existence since 1992.

Domestic demand set to rise after India's finance minister announces reduction in gold import duty to 7.5%

A new amendment introduced in the Indian tax laws has redefined the term ‘liable to tax', which will effectively end this practice, a tax expert told Arabian Business.

They said the move will impact Indian companies that have NRI-owned group entities in countries like the UAE, which are actually run from India.

However, NRI businessmen who actually reside in the UAE or other such countries will not be impacted. 

“Presently, the law does not define the term 'liable to tax' under section 6 relating to residency rule of the IT Act. Now, it is proposed that the term ‘person liable to tax'... is defined as a person having