COURTKUTCHEHRY SPECIAL ON DUBAI’s NRI TAX IMPLICATION ON INDIAN INCOME
Capital Gains and Dividends: How NRIs in Dubai Are Taxed on Indian Income
Indian law taxes NRIs on capital gains and dividends earned in India, despite UAE’s zero income tax
DTAA between India and UAE offers relief, but compliance requires tax residency certificate and proper filings
By Our Business Reporter
New Delhi: January 19, 2026:
For millions of Indians working in Dubai, the absence of personal income tax in the United Arab Emirates (UAE) is a major financial advantage. However, when it comes to income earned in India—such as capital gains from property or shares, and dividends from Indian companies—the rules are different. Under the Income Tax Act, 1961, Non-Resident Indians (NRIs) are liable to pay tax in India on income sourced from India.
This means that even though Dubai does not levy personal income tax, NRIs cannot escape taxation on Indian earnings. Recent clarifications from tax experts and rulings highlight how capital gains and dividends are taxed for NRIs, and how the India–UAE Double Tax Avoidance Agreement (DTAA) provides relief in certain cases.
Capital Gains Tax for NRIs
Capital gains arise when an asset is sold at a profit. For NRIs, taxation depends on the type of asset and holding period:
- Property sales:
- If held for more than 24 months, the gain is treated as long-term capital gain (LTCG) and taxed at 20% with indexation benefits.
- If sold within 24 months, it is short-term capital gain (STCG) and taxed at normal slab rates.
- Shares and securities:
- Listed shares held for more than 12 months attract LTCG tax at 10% (above ₹1 lakh).
- STCG on shares is taxed at 15%.
- TDS deduction:
- For NRIs, tax is deducted at source (TDS) when property or shares are sold in India.
- Buyers are legally required to deduct TDS before making payment to NRIs.
Dividend Taxation for NRIs
- Dividends declared by Indian companies are taxable in India.
- Since April 2020, dividends are taxed in the hands of shareholders, including NRIs.
- The rate of tax is 20% (plus surcharge and cess) for NRIs.
- Companies deduct TDS before transferring dividend income to NRI accounts.
NRIs can claim relief under DTAA to reduce the effective tax rate, often to 10–15%, depending on treaty provisions.
Role of DTAA (India–UAE Treaty)
The Double Tax Avoidance Agreement (DTAA) between India and UAE ensures that NRIs are not taxed twice on the same income.
- Tax Residency Certificate (TRC): NRIs must obtain a TRC from UAE authorities to claim DTAA benefits.
- Capital gains: Generally taxable in India, but DTAA may provide relief in specific cases.
- Dividends: DTAA caps tax rates, often reducing them from 20% to 10–15%.
- Compliance: NRIs must file returns in India to claim treaty benefits.
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Common Mistakes NRIs Make
- Not filing returns: Many NRIs assume TDS deduction is final, but filing returns is necessary to claim refunds or treaty benefits.
- Ignoring DTAA: Without a TRC, NRIs cannot claim reduced tax rates.
- Misunderstanding residential status: Tax liability depends on whether one qualifies as a resident or non-resident under Indian law.
Expert Insights
Tax experts emphasize that NRIs should:
- Maintain proper documentation of investments and sales.
- Obtain TRC and Form 10F to claim DTAA benefits.
- Consult professionals to avoid double taxation.
Broader Implications
- For NRIs: Understanding tax rules is crucial to avoid penalties and maximize savings.
- For India: Taxation of NRI income contributes significantly to revenue.
- For UAE residents: While Dubai offers tax-free salaries, Indian investments remain taxable.
Conclusion
NRIs working in Dubai enjoy tax-free salaries, but capital gains and dividends earned in India are taxable under Indian law. Relief is available under the India–UAE DTAA, provided NRIs obtain a Tax Residency Certificate and comply with filing requirements.
The message is clear: while Dubai offers a tax haven for salaries, Indian investments require careful tax planning. NRIs must stay informed, file returns, and use treaty benefits to optimize their financial outcomes.
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