India and the United Arab Emirates have agreed to simultaneously issue notifications regarding the taxability of a UAE resident in India. The proposed amendments to be incorporated in the India-UAE Double Taxation Avoidance Agreement (DTAA) is expected to clear the confusion created by contradictory verdicts on the issue by various judicial bodies in India.

The finance ministry sources are tight lipped on the possible amendments. The confusion stems from the fact UAE does not levy a direct tax on its residents. Under the circumstances tax judicial bodies in India have taken contradictory stands, some favouring levying tax on UAE residents in India on the ground that they pay tax at least in one country, while others have viewed that though not taxed at present, the UAE residents are liable to be taxed in the UAE and hence treaty benefits should be accorded to them.

While finance ministry does not want to speak about the contents of the case, sources in the government said levying tax on capital gains was actively considered during negotiations.

Another concept that was discussed during the negotiations between the two tax regimes is the idea of UAE levying a Jakat, ie a nominal tax. Once UAE starts levying a Jakat tax UAE residents become a tax resident of UAE and hence entitled to the benefit of India -UAE DTAA.

The Authority for Advance Ruling (AAR), a quasi-judicial body that gives a verdict on tax liability of possible transactions in India, The Income-tax Appellate Tribunal (ITAT), and the Supreme Court have taken decisions, contradicting each other. At the same time the Income-tax department went on taxing UAE residents, compounding the already existing confusion. It is in this background the government has decided to amend the provisions of INDIA-UAE treaty to clear the air over the issue.