NRI tax exemptions - UAE vs India comparison

For Non-Resident Indians (NRIs) residing in the UAE, understanding the financial benefits of the tax exemptions offered by both countries can significantly impact their savings and investments. The UAE’s favourable tax regime enables wealth accumulation with minimal interference, providing financial security. India’s tax exemptions—supported by the Double Taxation Avoidance Agreement (DTAA)—help NRIs lower their tax burdens on qualifying income, empowering them to manage their finances efficiently.

Understanding NRI tax exemptions in UAE and India can help NRIs optimise their tax planning strategies and manage finances efficiently. 

NRI guide: Understanding tax benefits for NRIs in India vs UAE

Here are the key things NRIs need to know about tax exemptions:

NRI tax exemptions in the UAE

1. No personal income tax
   
   • The UAE imposes no income tax on salaries or pensions earned by residents, including NRIs.
2. ​DTAA benefits​
   • Under the India - UAE Double Taxation Avoidance Agreement (DTAA), incomes like interest, dividends, and royalties are usually not taxed twice.
   • ​NRIs can claim a tax credit in India if the same income is somehow taxed in the UAE (though personal income is generally not taxed in the UAE).​
3. ​No capital gain tax

   • Profits from real estate sales or investments in the UAE are exempt from capital gains tax.

   • Rental yields in Dubai or other emirates are also exempt from local taxation.

4. Tax on rental income

   • ​There is no tax levied on rental income in the UAE.
     

5. ​VAT exemptions

   • A 5% VAT applies to goods and services, but many categories (healthcare, education, certain exports) are zero-rated or exempt.

   • Real estate can often be exempt or zero-rated, mainly residential properties.

6. Tax on offshore investments
   • The UAE does not levy tax on foreign income or offshore investments. This NRI tax exemption for expats can be a strategic benefit for managing their global assets and maximising wealth using offshore banking services.

NRI tax exemptions in India

1. Impact of residential status
   • NRI’s residential status in the financial year is considered for taxation. You are regarded as an NRI If you spend less than 182 days in India in the financial year. In this case, only your income earned or accrued in India is taxable. And your foreign income (income earned and received outside India) is not subjected to income tax in India. 
   • ​Tax exemptions for foreign nationals or overseas citizens of India (OCIs) are also the same.
2. DTAA benefits
   • India's Double Taxation Avoidance Agreement (DTAA) with the UAE helps you avoid being taxed twice on the same income.
     
   • DTAA doesn't offer an exemption; it avoids double taxation of the same income. You can claim a tax exemption in one country or credit for taxes paid in another.
3. Tax exemptions on income from other sources
   • Interest earned on non-resident external accounts (NRE) and foreign currency non-resident (FCNR) accounts is exempt from tax in India.
4. ​Tax exemptions on capital gains
   • As per Article 13 of the tax treaty signed between India and the UAE, capital gains on mutual fund investments made by UAE-based NRIs in India are taxable only in the UAE. This effectively makes the capital gains tax-free for UAE-based NRIs as the UAE does not impose personal income tax.
5. Return filing and tax compliance
   • NRIs are required to file income tax returns in India if the total income exceeds the basic exemption limit of INR 2,50,000.
   • NRIs who qualify as Residents but Not Ordinarily Resident (RNOR) or return to India and become residents again must be tax compliant by reporting their foreign assets in Indian tax returns.
   • NRIs from the UAE returning to India after retirement must consider provisions under Section 89A of the IT Act to avoid multiple tax liabilities on foreign retirement funds and NRI tax exemptions for retirees available under DTAA.

Tax exemptions comparison: UAE vs. India for NRIs

How to maximise UAE tax exemptions as an NRI

Here are a few essential tips to utilise tax exemptions in the UAE for NRIs:

1. Leverage tax exemptions on personal income such as salary, pension, or other income earned in the UAE.

2. Invest in real estate and leverage the benefit of tax exemptions on rental income and capital gains.

3. For income that could be taxed both in India and the UAE, you can use the Double Taxation Avoidance Agreement (DTAA) to reduce their tax liability. This is especially relevant for interest, dividends, and royalties.

4. You can accumulate wealth and pass on the inheritance without any tax burden, as no wealth and inheritance tax is applicable.

5. ​With many residency visa programs offered by the UAE government, you can leverage the benefit of NRI tax exemptions for students, investors, and business owners under these programs.

Conclusion

Understanding the tax rules and exemptions can help NRIs plan their investments effectively. NRIs can leverage DTAA provisions and the benefits of a tax-free regime in the UAE to optimise tax obligations and maximise their wealth efficiently.