How the deemed residency rule can hurt NRIs in some West Asian countries

“An RNOR is exempt from paying tax on foreign income in India but must pay tax on Indian income as a resident, and more importantly, will be devoid of any DTAA benefits,” said Bhawna Kakkar, chartered accountant and founder of Kakkar & Company.

This Oman-based NRI qualified on all counts as his interest and dividend income combined exceeded ₹15 lakh consecutively for a few years. Despite never setting foot in India in those years, he was deemed a resident.

"As a non-resident, I was getting a beneficial taxation rate of 20% on interest income from NCDs I had bought in India. But now this benefit on interest income has been removed," he said on condition of anonymity.

Lost benefits

The fallout goes beyond interest income. As an RNOR, he also lost access to the concessional 10% dividend tax rate available under the India-Oman DTAA. Every benefit he had relied upon for years, including reduced withholding rates, treaty-capped taxation and concessional treatment, was gone. He is now taxed as a resident on all Indian income, at slab rates that can reach 30%.

"My trouble didn't begin because I didn’t comply with tax laws or made a mistake – instead, it was because of a law I didn't know applied to me," he said.

What makes this rule particularly alarming is how easily the ₹15 lakh threshold can be breached. For NRIs with meaningful Indian investments, this is not a high amount. A single property sale generating capital gains above ₹15 lakh, which is routine in the real estate market, is sufficient to trigger deemed residency. Similarly, even a moderately sized dividend-paying portfolio in Indian equities can push an NRI past the limit.

However, the deemed residency provisions are not equally alarming across all West Asian countries where several Indians live in tax-free or low-tax jurisdictions. Harshal Bhuta, partner at P. R. Bhuta & Co, said NRIs based in the UAE have a structural advantage.

“The India-UAE DTAA recognizes an individual as a UAE tax resident if they spend 183 days there in a calendar year. So, even if you don’t pay tax, this criterion alone creates dual residency, which triggers the treaty's tie-breaker tests, like checking the taxpayer’s permanent home, centre of vital interests, habitual abode and nationality. Most long-term UAE residents break this tie decisively in the UAE's favour, effectively neutralizing India's deemed residency claim,” Bhuta said.

Residency article

While residents of the UAE may enjoy the structural advantage, Oman, Bahrain and some other tax-free countries may leave you at the mercy of Indian domestic law and hence be stripped of any tax advantages if income crosses ₹15 lakh. This is because these countries only tax companies and not individuals.

Since NRIs in these countries bear no tax liability there, they cannot qualify as tax residents under the DTAA's residency article, and without that qualification, they cannot access the treaty at all.

If Indian-source taxable income from property sales, equity gains, dividend or interest crosses ₹15 lakh in any financial year, deemed residency kicks in and every treaty benefit disappears. Tax experts advise such NRIs to audit their Indian income immediately, restructure investments and consider proactively filing updated returns before the department comes knocking.

Shipra Singh

Shipra joined Mint’s personal finance team in September 2021, and writes on tax, credit cards, banking, estate planning and investments. She began her career in personal finance as an intern with Outlook Money magazine in 2017, and has since worked with The Economic Times and Entrepreneur India as a business journalist covering fintech and emerging financial services.Over the years, she has reported on key aspects of household finance, tracking regulatory changes, market trends and evolving consumer behaviour. Shipra’s main beats are tax and banking products, with a focus on compliance gaps and their real-world impact for readers navigating complex financial decisions. Her reporting on GST and personal tax, particularly foreign asset disclosures and NRI taxation, has contributed to wider policy discussions and subsequent changes.She also interviews market experts for the Mint Money podcast, covering topics ranging from stock market investing to how credit scores shape financial outcomes and access to credit.Shipra has a keen interest in data-driven analysis and writing human-centric features that explore how people’s habits around spending, investing and wealth creation are evolving. Her work focuses on helping readers make informed financial decisions in an increasingly complex economic landscape.Shipra holds a Bachelor’s degree (Honours) and a Master’s in English Literature from Delhi University.