An Indian citizen, who is having a permanent home in the UAE and has his employment or business in the UAE, and spends most of his time in the country, will not be affected by a new provision in the Finance Bill 2020, as he is deemed a resident of the UAE, the Government of India said on Sunday.

The clarification was made to dispel doubts about a fresh provision in the Finance Bill 2020. As per the Sub-section (1A) in Section 6, an Indian citizen will be deemed a resident in India if he is not liable to tax anywhere else. Under that sub-section, if he also becomes a resident in India, it becomes a case of tie-breaker. The tie-breaker rule is applied in accordance with Article 4 of India UAE DTAA.

Providing more clarity on the issue, the Indian government said that an Indian citizen staying in the UAE for 183 days or more in a calendar year is deemed a resident of the Emirates as per the UAE law, and can benefit from the bilateral Double Taxation Avoidance Agreement that exempts him from taxation in India.

The first tie-breaker rule is to ascertain where the person has a permanent home. If he has a permanent home in UAE only, the tie-breaker test is resolved in favour of him being a resident of UAE.

According to the government, if he has permanent homes in both the UAE and India, we go to the second test, which is the center of vital interest being personal and economic relation. If a person is employed only in UAE or has a business establishment only in the UAE or has a source of income only in the UAE, then his economic relation would only lie in the UAE. Under such a scenario, he would become a resident of the UAE.

If he has a personal and economic relation both in India and in UAE, the next tie-breaker test is where does he habitually reside. Habitually abode criterion is decided based on period of time one stay in a country. If a person actually resides only in the UAE and occasionally visits India, he would be resident of the UAE, the government explained.

Following scenarios will illustrate the tie-breaker rule: In the first scenario, an Indian citizen has permanent home only in India and he starts staying in the UAE to avoid payment of tax in India. In this case, he would be resident in India and would be liable to tax in India on global income.

Second: An Indian citizen has a permanent home in India and personal and economic relation as well only in India and to avoid payment of taxes in India he starts staying in India. He also buys a house in UAE but personal and economic relation remains in India. In this case, he would be resident in India and would be liable to tax in India on global income.

Third: On the other hand, if an Indian citizen has permanent home only in UAE he would be resident in UAE and would not be hit by this new provision.

Fourth: Further, if he has a permanent home in both India and the UAE but personal and economic interest only in the UAE. For example, he is having employment or business establishment or source of income only in the UAE. In this case, he will be a resident of the UAE and would not be hit by this new provision.

Fifth: In another situation, if Indian citizen has a permanent home as well as personal and economic interest both in India and the UAE and if he stays in the UAE regularly and occasionally visits India, his place of habitual abode would be in UAE and he would be resident of the UAE and would not be hit by this provision.