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New India tax worries NRIs in UAE
April, 19th 2007

The new amendments in India-UAE tax treaty, which will allow taxation on investments back home is causing concern among the Indian community here.

The situation has caused panic since details of the amendments are yet to be made public. India and the UAE signed several agreements, including amending the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect of taxes on income, during the visit of Shaikh Mohammed bin Rashid Al Maktoum, prime minister of the UAE to India on March 25-26.

Amendments are being made to the UAE Double Taxation Avoidance Agreement (DTAA) as per which UAE-based NRIs will be taxed for future capital gains (income) earned from investments in India. There are nearly over a million NRIs in the UAE a majority of them have investments in the stock markets.

The amendments will directly hit not only individual investors, but also investment companies that use UAE as a base to make investments in Indian stock markets. "We are very keen to know the outcome of the newly-signed Indo-UAE Double Taxation Avoidance Agreement," said K V Shamsudin, Director of Barjeel Securities, a major UAE-based brokerage house.

As per the DTAA that India has with the UAE, capital gains earned in India would be liable to tax only in the UAE. In other words, such capital gains are not to be taxed in India at all. However, since there is no tax in the UAE, the capital gains go tax-free altogether.

This double non-taxation had become the bone of contention. The amendments now also define an individual who resides in UAE for at least 183 days in a calendar year as the 'resident' of that country.

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