The Finance Bill 2020 has introduced a Sub-section (1A) in Section 6 deeming an Indian citizen to be resident in India if he is not liable to tax anywhere else.
"An Indian citizen who is having a permanent home in UAE and have his employment or business in UAE and most of the time stay in UAE would not be hit by this provision and would remain resident of UAE," said the government.
To dispel doubts about the new provision, the government says that "there is an Indian citizen who stays in UAE. As per UAE law, if a person stays there for 183 days or more in a calendar year, he becomes resident of UAE. If under Sub-section (1A), he also becomes 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."
The first rule is where does this person have 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 a permanent home in both the UAE and India, we go to the second test, which is the centre of vital interest being personal and economic relation. If a person is employed only in UAE or has 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 personal and economic relation both in India and in UAE, the next tie-breaker test is where does he habitually abode (reside). Habitually abode criteria 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, says the government further.
Thus, the following scenario would illustrate this tie-breaker rule:
1) 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.
2) 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.
3) 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.
4) 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.
5) 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.
"Thus, an Indian citizen who is having a permanent home in UAE and have his employment or business in UAE and most of the time stay in UAE would not be hit by this provision and would remain resident of UAE," says the government. (ANI)