Indian tax considerations for UAE residents returning to India

A number of Indian nationals may be considering a return to India in light of the current political uncertainty in the Middle East. While this may be a practical response, it is important to understand the potential tax implications.

An individual will generally become tax resident in India if they spend 182 days or more there in a tax year, or 60 days in the year and 365 days over the preceding four years. For Indian citizens and persons of Indian origin visiting India, this 60-day threshold may increase to 120 days where income exceeds INR 1.5 million (approximately AED 60,000). In certain cases, individuals who are not tax resident elsewhere may still be treated as Indian tax resident under a deemed residency rule.

Although the rules are based on physical presence, Indian courts have considered situations where an individual’s stay was involuntary. In one leading case, the Delhi High Court held that days spent in India due to the impounding of a passport should not be counted towards residence, as the individual had no ability to leave. More recently, the courts have indicated that similar principles may apply where presence in India is clearly beyond the individual’s control. However, these cases are fact-specific. In the absence of comparable circumstances or specific guidance, it is unlikely that time spent in India due to general geopolitical uncertainty would be treated as involuntary for these purposes.

The consequences of becoming tax resident can be significant. Individuals may be subject to Indian tax on their worldwide income, including employment income where duties are performed in India, subject to relief under the India–UAE double taxation treaty. There may also be additional compliance and withholding obligations depending on the structure of employment.

From a corporate perspective, the presence of employees working from India can create exposure for UAE businesses. This includes permanent establishment risk where a home office in India is used on a continuous basis, where contracts are habitually concluded, or where services are performed in India over an extended period. In addition, if senior management or key decision-makers are effectively operating from India, there is a risk that the place of effective management could be regarded as being in India. Broader “business connection” rules may also bring part of a company’s profits within the Indian tax net.

Careful monitoring of days spent in India, alongside proactive structuring of employment and management arrangements, will be key to managing these risks.

‍How can Sanctuary help?

Navigating the tax corridor between the UAE and India requires a dual-lens approach—protecting your personal wealth while safeguarding your business interests. At Sanctuary, we provide the specialist insight needed to manage this transition seamlessly.

Visit our Tax & Advisory service page to learn more about our tax & residency advisory, or contact us for a bespoke consultation via the contact form or email us at: hello@sanctuary.ae.