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Friday, January 26, 2007

When Is Salary Earned in UAE Become Taxable in India?

DEEPAK_DELHI_007@....COM Asked
I m working in Dubai since september 2006 till today in a bank. (4 months).
However i have the appointment letter of an outsourcing company of the
bank. I m planning to resign and go back to Delhi. around 26000 In delhi I
have earned around 1,00,000/- rupees and in Dubai dirhams {312000/-
rupees} and i have not completed 182 days in dubai. living in a bed space in
Iamdubai and paying 1000 AED as rent but I dont have any rent slip for it + i
have expenditure for food around 500 Dirhams.How will the tax calculation
done for me in India, will I get any exemption?Thanks, Deepak.

You should know that there is double taxation agreement between India and
UAE . Article 15 of the said Double taxation Avoidance Agreement is regarding
the Salary and Wages . It says that salary received by an Indian is taxable in
India only if following conditions are fulfilled, tax shall be charged only in that
state.

• Indian is in UAE for less than 182 days ; and


• the remuneration is paid by, or on behalf on, an employer who is not a
resident of UAE; and
• the remuneration is not borne by a permanent establishment or a fixed
base which the employer has in the other State.

Therefore , if you are receiving salary from Dubai Bank in Dubai and you stay
in Dubai for more than 182 days in FY 2006-07 , your salary shall not be
taxable in India . That will be taxable only in Dubai.

Otherwise also ,your salary received from Dubai bank will become Exempt
from tax if it is received outside India, the moment you spent 183 days in
Dubai upto 31st march 2007.This is on account of the reason that you will
become Non Resident for Fy 2006-07 and income earned and received outside
India for service given outside India is non taxable in India.. Your taxable
income in India will be Rs 1,00,000 which is the maximum amount not taxable .

As far as exemption regarding HRA is concerned, it is allowed HRA is received


and rent is incurred for self residence . But the question of allowance of HRA
will come into play only if the salary from Dubai bank is taxable. In that case ,
you should claim the HRA exemption even you do not get any rent receipt .The
chance of dis allowance in absence of evidence is very high, but if you have
spent on rent, get a certificate from your Dubai bank that you are staying
Dubai on rented flat or bed and that a certain amount is being spent by you
there.

Lastly for reference the excerpt from Article 15 of DTAA is given as under for
ready reference.

"ARTICLE 15 - Dependent personal services - 1. Subject to the provisions of


Articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar
remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is
exercised in the other Contracting State. If the employment is so exercised,
such remuneration as is derived therefrom may be taxed in that other State.

"2. Notwithstanding the provisions of paragraph (1), remuneration derived by


a resident of a Contracting State in respect of an employment exercised in the
other Contracting State shall be taxable only in the first-mentioned State if:

• (a) the recipient is present in the other State for a period or periods
not exceeding in the aggregate 183 days in the relevant previous year or
year of income, as the case may be ; and
• (b) the remuneration is paid by, or on behalf on, an employer who is not
a resident of the other State ; and
• (c) the remuneration is not borne by a permanent establishment or a
fixed base which the employer has in the other State."