Indian Citizen - Deemed Residency

1. Meaning of Deemed Residency

Under Section 6(1A) of the Income Tax Act, an individual will be considered a deemed resident of India if:

• Their total income (excluding foreign-sourced income) exceeds ₹15 lakh in a financial year, and

• They are not liable to tax in any other country or territory due to reasons like domicile, residence, or similar criteria.

2. Stateless Persons

This provision is designed to address stateless persons — primarily Indian citizens who earn substantial income from Indian sources but do not qualify as residents in any country.

3. Taxation Under Section 6(6)

Individuals categorized as deemed residents are taxed in India as Residents but Not Ordinarily Residents (RNOR). This tax status entails:

• Taxation on Indian-sourced income and income derived from a business or profession controlled from India.

• Foreign income remains exempt from Indian taxation unless it originates from an Indian-controlled business.

4. Meaning of "Liable to Tax"

As defined under Section 2(29A), "liable to tax" refers to a person being subject to income tax under the laws of a given country. This includes individuals who are:

• Currently liable to tax under that country's law.

• Exempted from tax after initially being subject to such liability.

Importantly, the condition focuses on the existence of tax liability, not the actual payment of tax, especially if an exemption applies.

5. Applicability to UAE Residents

For Indian citizens working in the UAE, questions arise regarding their deemed residency status. Since the UAE currently does not impose individual income tax (except for business income), such individuals are generally considered not liable to tax under Section 2(29A). Consequently, they may fall within the deemed residency provisions if they meet the income criteria.

Conclusion

The deemed residency rule targets high-income Indian citizens who might otherwise avoid tax residency status anywhere. Finance professionals and expatriates should assess their income sources and tax liabilities carefully to ensure compliance with these evolving regulations.