NRIs in UAE are not subjected to Income Tax
The budget proposals announced by the Indian Finance Minister have sent shock waves to non-resident Indians.
Question: The budget proposals announced on Saturday by the Indian Finance Minister have sent shock waves to non-resident Indians. Will they have to pay tax in India since they don't pay tax in the UAE? Please explain urgently.
Answer: The proposed amendment is meant to cover individuals who are constantly on the move and spend weeks in different countries in order to avoid tax liability in any country of the world. Typically such persons spend less than three months in each country every year so that they do not fall within the ambit of the tax laws of such country. Therefore, a provision is sought to be introduced in the Finance Bill, 2020, which will be applicable from the financial year beginning on 1st April, 2020, relevant to the assessment year 2021-22, to provide that an Indian citizen who is not liable to tax in any country in the world would be deemed to be a resident of India for tax purposes.
Under the UAE tax law, residents may be liable to tax; certain corporations having specified income are taxable. However, individuals and others are exempt from tax. As and when such exemption is removed, the liability to pay tax will arise. Hence, such persons employed in the UAE or carrying on a business or profession with a valid visa, though technically covered under the UAE tax law, are not subjected to Income Tax. The words "liable to tax" are crucial in this context.
In fact, the amendment is not meant to cover persons who are resident in any country. Under Article 4.1(b) of the Indo-UAE Double Tax Avoidance Agreement, an individual who has spent in the aggregate at least 183 days in a calendar year in the UAE is deemed to be a resident. Hence, Indians working in the UAE will not be covered by this amendment. It is further proposed in the Budget that a person who visits India and spends less than 120 days will retain his non resident status under Indian tax laws; otherwise he will lose it. This proposal will prevent investments from flowing into India and will be opposed. If this amendment goes through, an Indian must ensure that he spends less than 120 days in India in a financial year.
Q: I have invested in shares and debentures of several listed companies. Some of these companies have delayed or defaulted in repaying loans taken by them from banks and financial institutions. As an investor, I am greatly concerned that this information of delay or default is not readily available. If investors are aware of these defaults, they would immediately take remedial action and pull out their investments before the share prices drop substantially. Is there any means of getting this information? I am taking full advantage of the portfolio management scheme.
A: The regulator, Securities & Exchange Board of India, has recently tightened the guidelines for listed companies on disclosure of loan defaults. As per the new norms, when a default is committed by a listed company in repaying the principal amount on schedule, the company has to disclose the fact of such default to the stock exchanges. This requirement is applicable where the delay in repayment of the principal amount and interest is beyond thirty days from the agreed payment date. The notice of such delay or default is required to be given within 24 hours from such thirtieth day.
This will provide transparency and protect the interest of investors so that they can act appropriately in the shortest possible time. These disclosure norms have been formulated by SEBI in consultation with the Reserve Bank of India. Since you are availing of the portfolio management scheme, you may note that SEBI has decided to increase the net worth requirement of portfolio managers from Rs20 million to Rs50 million. This will ensure that the managers have a stronger financial base.
Q: I have served on the board of several companies in the Gulf during the past fifteen years. On returning to India for good, I would like to serve as an independent director on the board of reputed companies if invited to do so, as I believe that there is a substantial shortage of independent directors. What are the consequences of taking up such assignments?
A: Independent directors perform functions which are critical to good corporate governance. However, the liability framework governing such directors casts an onerous burden and the liability-related risks faced by independent directors are disproportionate to the remuneration which they may earn. The Companies Act, 2013 seeks to limit the liability of non-executive directors by providing for certain safe harbour rules designed specially for them. However, the directors have to initially face investigative or legal proceedings before they are exonerated.
Further, you need to know that all independent directors with less than ten years experience of acting as such, will have to take an online proficiency self assessment test before they can be appointed on boards of companies. The test will be conducted by the Indian Institute of Corporate Affairs. This Institute will create and maintain a data bank with names, addresses and qualifications of people who are eligible to be appointed as independent directors. Boards of companies will have to disclose the results of these tests in their annual report.
- H. P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.
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