Double Non-Taxation for NRIs: When Both India and Your Host Country Let You Off

A reader in Dubai sold Rs 40,00,000 worth of Indian equity mutual funds in March 2026. His registrar deducted no TDS. He filed an Indian return, claimed the India-UAE treaty, and the assessed tax was nil. His UAE bank account was untouched too, because the UAE has no personal capital gains tax. The same income, generated in India, was taxed by neither country. That outcome was not the product of any clever structuring. It followed directly from the plain text of Article 13 of the India-UAE DTAA, a tribunal ruling that confirmed how it applies to mutual fund units, and Section 10(4) of the Indian Income Tax Act, which was never in dispute.

This guide is about cases like that: situations where the law genuinely permits zero tax in both countries on the same income, why they exist, and what the limits are. It is not a guide to manufacturing non-taxation through artificial arrangements, and the distinction matters because the line between the two is precisely where India's General Anti-Avoidance Rule and the OECD's BEPS rules now sit.

The 30-second answer: Double non-taxation for an NRI means one income stream is not taxed in India and also not taxed in the country of residence, legally. The main legitimate cases are: NRE interest, exempt in India under Section 10(4) and untaxed in most Gulf countries; mutual fund unit gains for UAE residents under the residual clause of Article 13 of the India-UAE DTAA, confirmed by Delhi ITAT in Saket Kanoi (October 2024); and historically, share gains under the Mauritius and Singapore treaties for pre-April 2017 acquisitions. The key requirement in every case is genuine substance: the NRI must actually reside and have their centre of life in the treaty country, not simply hold a visa or a mailbox address. India's GAAR (Sections 95-102) and the OECD's Principal Purpose Test both target arrangements where the non-taxation is manufactured rather than arrived at naturally.

Double non-taxation is one of those phrases that sounds like it must be about evasion, when in fact it describes a precise technical outcome that tax treaties and domestic laws create deliberately, sometimes by design and sometimes as a side effect of how two jurisdictions' rules happen to interact. Understanding the legitimate cases, and the conditions that make them hold, is more useful than either celebrating the outcome or treating it with reflexive suspicion.

What double non-taxation actually means

Single taxation is what a Double Taxation Avoidance Agreement is designed to achieve. The classic DTAA problem is the same income being taxed in full by two countries, and the treaty's job is to prevent that, usually by limiting the source country's rate and giving the residence country the right to grant a credit. The result is that the income is taxed once, at approximately the higher of the two countries' rates.

Double non-taxation is the opposite end: income that is subject to tax in neither jurisdiction. It can arise in two structurally different ways.

The first is when both jurisdictions grant a positive exemption. India's domestic law makes the income tax-free, and the residence country also exempts it. NRE interest is the clearest example.

The second is when the treaty assigns the taxing right to country A, but country A happens to charge zero. The income is not exempt in country A; it is taxable there in principle, but the applicable rate is nil. India-UAE mutual fund gains work this way: India cedes the taxing right to the UAE under Article 13's residual clause, and the UAE then exercises that right at a zero rate because it levies no personal capital gains tax on individuals.

These two mechanisms look the same from the outside (no tax anywhere), but they are legally distinct, and the distinction matters when GAAR or the PPT is applied. A positive exemption is harder to attack under anti-avoidance rules than a zero rate applied by a treaty partner. The first is a legislative choice; the second depends on continuing treaty terms and on the residence-country tax regime, which can change.

There is a third case, less legitimate and increasingly targeted: arrangements where the income would otherwise be taxed in both countries, but an artificial interposition of an entity in a low-tax jurisdiction converts it into a double non-taxation outcome. This is treaty shopping in the technical sense, and it is the primary target of both GAAR and the BEPS reforms.

NRE interest: the clearest legitimate case

NRE account interest is tax-free in India under Section 10(4)(ii) of the Income Tax Act, available to any individual who is a non-resident under Section 6. There is no treaty involved, no Form 10F to file, no Tax Residency Certificate required. The exemption applies by operation of domestic law the moment the person is confirmed as a non-resident.

For a Gulf-resident NRI, NRE interest is also untaxed in the residence country because the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain and Oman all levy no personal income tax. The result is that the interest earned on an NRE account is taxed by neither India (domestic exemption) nor the Gulf country (no income tax), and this is completely lawful.

The same outcome applies to FCNR deposits, which are exempt under Section 10(4)(i) for non-residents.

For US, UK and Canada residents, the picture is different. India still does not tax NRE interest, but the residence country does. A US citizen includes NRE interest in their global income for US tax purposes. A UK tax resident reports it on a self-assessment return. The India leg of double non-taxation survives, but the residence-country leg does not, so the income is taxed once, in the residence country.

The NRE interest exemption has a residency cliff: when the account holder becomes a resident under Section 6 (by spending more than 182 days in India in a financial year, or satisfying the RNOR conditions and then becoming resident), Section 10(4) ceases to apply to interest credited from that point onward. Accounts need to be re-designated to NRO or RFC, and continuing to claim the exemption after becoming resident is not a grey area. The residency and RNOR rules guide sets out the Section 6 day-count in full.

UAE NRIs and capital gains: what Article 13 actually does

The India-UAE DTAA is the treaty that produces the most significant and widely applicable double non-taxation outcomes for NRIs. Understanding it requires reading Article 13 carefully, because the article splits capital gains into categories and the category determines who has the taxing right.

Immovable property (real estate): Gains are taxable in India under every treaty. Article 13 of the India-UAE DTAA gives India the primary right to tax gains on Indian property. A UAE resident selling a flat in Hyderabad will pay Indian capital gains tax at 12.5 per cent on long-term gains (held more than 24 months) under Section 112 as amended, with no indexation from AY 2025-26 onward. There is no UAE tax on top, but the Indian tax is unavoidable. This is not double non-taxation; it is single taxation in India.

Shares of Indian companies: The 2007 protocol to the India-UAE DTAA amended Article 13 to allow source-based taxation of gains on shares of Indian companies. India can therefore tax a UAE resident on gains from selling direct listed equity under Section 115AD, at 15 per cent on short-term gains and 12.5 per cent on long-term gains (with the Rs 1,25,000 annual LTCG exemption under Section 112A applying where available). The UAE does not impose a second tax, but the first tax (India's) is legitimate and charged. This is single taxation, not double non-taxation.

Mutual fund units: This is where the zero-tax outcome arises. Indian mutual funds are constituted as trusts under SEBI regulations, and a unit in a mutual fund is not a share of a company. The Delhi ITAT held in Saket Kanoi v. DCIT (order dated 23 October 2024) that mutual fund units fall outside the shares clause of Article 13 and into the residual paragraph, Article 13(4), which assigns the taxing right exclusively to the country of residence. Because the UAE levies no personal capital gains tax, the UAE resident pays nothing in India and nothing in the UAE. The Mumbai ITAT reached the same conclusion for a Singapore resident in Anushka Sanjay Shah v. ITO (March 2025) under the structurally similar Singapore treaty.

A worked example: mutual funds versus property for a UAE resident

Take Priya, a software professional resident in Dubai since 2019, holding a UAE residence visa through her employer, with a UAE Tax Residency Certificate showing 11 months of presence in the UAE in FY 2025-26.

In March 2026 she redeems Indian equity mutual funds with a long-term capital gain of Rs 25,00,000.

Under domestic Indian law (Section 115AD read with Section 112A), the first Rs 1,25,000 is exempt. The remaining Rs 23,75,000 is taxed at 12.5 per cent, giving a tax of Rs 2,96,875 plus 4 per cent cess of Rs 11,875, total Rs 3,08,750.

Under Article 13 of the India-UAE DTAA with a TRC and Form 10F filed, the gain falls under the residual clause and is taxable only in the UAE. The UAE charges zero. Indian tax: nil. UAE tax: nil. Saving: Rs 3,08,750.

In the same year Priya also sells an apartment in Mumbai with a long-term capital gain of Rs 25,00,000. India taxes it under Section 112 at 12.5 per cent regardless of the treaty. Indian tax: approximately Rs 3,08,750 including cess. UAE tax: nil. No double non-taxation here; single taxation in India, unavoidable.

The gap between the two outcomes explains why NRIs in the Gulf who understand the treaty often hold Indian equity exposure through fund units rather than direct shares. The economic exposure can be similar; the treaty treatment is not.

The documentation that makes the position hold

The zero-tax position on mutual fund units is not automatic. The mutual fund registrar will typically deduct TDS under Section 196A at 20 per cent on gains unless the investor provides documentation. The steps are:

1. Obtain a UAE Tax Residency Certificate from the Federal Tax Authority (UAE FTA). Under UAE Cabinet Decision No. 85 of 2022, an individual on a UAE residence visa with employment there qualifies with as few as 90 days of physical presence. The certificate is renewed annually.
2. File Form 10F on the Indian income-tax portal. Since late 2023 this can be done without a PAN using the non-resident registration category. A PAN is still needed to file an ITR and claim a TDS refund.
3. Submit a no-permanent-establishment declaration to the registrar or fund house.
4. File ITR-2 in India, reporting the gain in the capital gains schedule but claiming exemption under the DTAA with the treaty position disclosed.

If the registrar still deducts TDS despite the documentation, the refund is claimed in ITR-2. The TDS for NRIs and refunds guide covers the refund mechanics, and DTAA mechanics, TRC and Form 10F covers the documentation in detail.

Two honest cautions. First, these are tribunal rulings, not Supreme Court precedent. The tax department can contest the position on any individual's file, and historically it has done so at the assessment stage. The realistic approach is to file with the treaty position supported by a CA who will defend it, not to treat the zero deduction as automatic. Second, this analysis covers mutual fund units. Listed shares of Indian companies do not get this treatment for UAE residents post-2007.

Singapore: what changed in 2017 and what survives

Singapore residents enjoyed a position almost identical to UAE residents under the pre-2017 India-Singapore DTAA. The treaty originally assigned capital gains on shares to the country of residence, and since Singapore charges no capital gains tax, the effective Indian tax on those gains was zero for Singapore residents.

The India-Singapore DTAA was amended by a protocol signed on 30 December 2016, effective from 1 April 2017. The protocol mirrored changes made to the India-Mauritius treaty a few months earlier. The key change: for shares of Indian companies acquired on or after 1 April 2017, India has the right to tax gains at its domestic rates.

What survives for pre-2017 holdings: A Singapore resident holding Indian shares or share-based instruments acquired before 1 April 2017 retains the original treaty protection. The gain on those specific holdings, when eventually realised, is still taxable only in Singapore, which means effectively at zero. These grandfathered positions continue to matter for investors who built positions before the cutoff and have not yet exited. The acquisition date of each parcel of shares, not the date of sale, determines which rule applies.

What does not survive: Any Indian shares or share-based instruments acquired on or after 1 April 2017 are taxable in India at domestic rates. This covers the large majority of portfolios held today.

Mutual fund units for Singapore residents: The same trust-versus-company analysis that applies to UAE residents applies to Singapore residents, because the treaty structure is similar. Singapore also levies no capital gains tax on individuals. A Singapore-resident NRI with Indian mutual fund units (acquired at any date, including post-2017) is in a comparable position to a UAE resident, with the same tribunal-backed treaty claim available under the residual clause of the Article 13 equivalent.

The India-Singapore DTAA deep dive covers the pre- and post-2017 treatment in full, including the sourcing rules for mixed portfolios.

Mauritius: the institutional route that was substantially closed

The India-Mauritius DTAA was, for two decades, the dominant vehicle through which foreign institutional investors structured Indian equity investments. The treaty's original capital gains article made share gains taxable only in Mauritius, which charges no capital gains tax on individuals or most entities, so a fund structured in Mauritius paid no Indian tax on equity gains. The result was substantial capital flows through Mauritius into Indian markets.

The protocol of 10 May 2016 ended the broad Mauritius benefit:

• Shares acquired before 1 April 2016: fully grandfathered. India cannot tax the gains on these holdings when they are sold, regardless of when the sale happens.
• Shares acquired between 1 April 2016 and 31 March 2017: transitional. India can tax, but at a rate capped at 50 per cent of the applicable domestic rate.
• Shares acquired on or after 1 April 2017: taxable in India at full domestic rates.

For institutional investors with grandfathered pre-2016 positions, the treaty protection is real and legally preserved. Many large funds carefully tracked their acquisition dates through the transition and continue to maintain separate pools for pre- and post-cutoff holdings. But for any investment made after April 2017, the Mauritius route provides no capital gains shelter.

The Mauritius route was also attacked under the beneficial owner test even before the 2016 protocol. Indian courts and the tax department scrutinised whether a Mauritius fund house was the true beneficial owner of the income or merely a conduit passing income through to investors resident elsewhere. Where the fund was a genuine Mauritius-based structure managing third-party assets with its own investment decision-making, the test was generally satisfied. Where the Mauritius entity was a shell holding assets on behalf of an Indian promoter, the test was routinely failed and the treaty benefit denied.

BEPS, the Principal Purpose Test, and what it means for genuine NRIs

The OECD's Base Erosion and Profit Shifting project, implemented through the Multilateral Convention that India signed in 2017 and ratified in 2019, introduced the Principal Purpose Test (PPT) into a large number of India's treaties. The PPT provides that a treaty benefit is denied if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of an arrangement or transaction, unless granting the benefit is in accordance with the object and purpose of the treaty.

India's CBDT clarified the PPT's application in a circular dated 21 January 2025, confirming that a Tax Residency Certificate is not by itself sufficient to defeat a PPT challenge where the circumstances indicate the principal purpose was treaty access.

For a retail NRI with a straightforward life in the UAE, where they work, live, and maintain a home, the PPT is not a serious concern. The principal purpose of living in Dubai is employment, family, or lifestyle. The zero tax on Indian mutual funds is a consequence, not the driver. The PPT focuses on arrangements designed around obtaining the tax benefit, not on personal choices that incidentally produce one.

Where the PPT matters is at the margins:

• An individual who obtains a UAE residence visa, registers a UAE address, and continues to spend the majority of the year in India while claiming UAE residency for treaty purposes. The physical presence requirement for the UAE TRC (minimum 90 days for visa holders) catches the most egregious version of this, but the PPT can reach cases where the letter of the TRC requirement is met but the economic substance is absent.
• A corporate structure interposed in the UAE to hold Indian assets on behalf of an individual who is not genuinely UAE-resident. The entity cannot claim a treaty benefit that the underlying investor would not be entitled to claim personally.
• A restructuring of holdings immediately before a large sale, designed to bring assets within a more favourable treaty position, with no durable commercial reason for the restructuring beyond the anticipated gain.

The PPT does not affect investments grandfathered under the Mauritius and Singapore protocols. The CBDT circular confirms that the PPT does not override the grandfathering provisions expressly negotiated in those protocols, which were designed to provide certainty for existing positions.

GAAR: the domestic anti-avoidance backstop

India's General Anti-Avoidance Rule, in Sections 95 to 102 of the Income Tax Act and in force since 1 April 2017, is the domestic counterpart to the BEPS PPT. GAAR allows the Assessing Officer, with the sanction of the Approving Panel, to recharacterise or disregard an "impermissible avoidance arrangement": one whose main purpose is to obtain a tax benefit and which lacks commercial substance, or which is conducted in a manner not ordinarily employed for bona fide purposes.

GAAR can override treaty benefits. Section 90(6) of the Act states that the DTAA does not limit India's ability to apply GAAR. A structure that would succeed under the treaty text can be attacked under GAAR if it lacks substance and exists primarily to access the treaty.

The procedural threshold is meaningful: GAAR requires Approving Panel involvement and cannot be invoked by a junior Assessing Officer acting unilaterally. The 2017 CBDT guidelines on GAAR confirm it is not aimed at standard commercial transactions with a genuine business purpose.

For a genuine UAE NRI selling Indian mutual funds, GAAR has no realistic application. The substance of their life is in the UAE. The treaty benefit is incidental to that life. There is no arrangement in the legal sense. GAAR is aimed at the person who remains in India but creates a UAE-registered structure to hold Indian assets on behalf of themselves, then claims the treaty as if the structure were a genuine UAE entity.

The more targeted GAAR risk is for corporate or trust structures used to channel Indian investment income through low-tax jurisdictions. If an Indian family creates a UAE holding company, parks Indian mutual funds in it, and then claims the India-UAE treaty for the company's gains, the department will look at whether the company is genuinely managed and controlled from the UAE, whether it has a real business purpose, and who the beneficial owners are. A company run from a kitchen table in Pune does not clear that bar.

The substance requirements in practice

The consistent thread across BEPS, GAAR, the beneficial owner requirement in treaty articles on interest and dividends, and the UAE TRC issuance rules is substance. A treaty benefit claimed by a genuine resident of the treaty country, living and working there, holds. A benefit claimed by a shell entity or a nominal resident holds far less securely.

For UAE NRIs specifically, substance means the following in practice.

Physical presence: The UAE FTA requires the individual to be genuinely present. For UAE visa holders, the 90-day minimum is a floor, not a target to reach and immediately leave. Many genuine residents are present far more. Separately, spending 182 days or more in India in a financial year triggers Indian tax residency under Section 6, which then overrides the UAE claim entirely. The two thresholds act together: present enough in the UAE to qualify for the TRC, and not present too much in India to lose non-resident status.

A genuine home: The UAE FTA requires a tenancy contract or Ejari, proof of a real physical address. A hotel room, a serviced apartment without a lease, or a co-working address does not satisfy this.

Genuine employment or business: For a salaried employee in the UAE, the employment contract and payslips establish this without difficulty. For a business owner, the business registration, activity records, and board meeting locations are scrutinised.

Beneficial ownership: For interest and dividends, treaty articles commonly require the recipient to be the beneficial owner of the income, not merely its legal recipient. A person who receives interest and immediately remits it to a third party under a prior arrangement is not the beneficial owner for treaty purposes and cannot claim the treaty rate on it.

None of these requirements are onerous for an NRI who genuinely lives and works in the UAE. They are, by design, difficult for someone trying to claim UAE residency without actually being there.

Where double non-taxation does not exist

Being equally clear about where the outcome does not arise is as important as identifying where it does.

Indian rental income: Taxable in India under every treaty. The immovable property article in every Indian DTAA gives India the right to tax rental income from Indian property. A UAE resident landlord pays Indian tax on Indian rent, typically deducted at source by the tenant under Section 194-IB. The rental income guide for NRIs covers the rates and TDS mechanics.

NRO account interest: Taxable in India under every treaty, with the rate capped. The India-UAE treaty caps it at 12.5 per cent under Article 11. That is not zero. A UAE resident's NRO interest is taxed by India at 12.5 per cent and untaxed by the UAE, so the income bears one tax. Compare this to NRE interest, which is exempt in India entirely under Section 10(4), producing genuinely zero Indian tax. The tax on NRO interest guide sets out the NRO tax mechanics and the DTAA claim process.

Dividends from Indian companies: Taxable in India under all major treaties, with rate caps. The India-UAE treaty caps dividends at 10 per cent under Article 10. Not zero.

Gains on Indian real estate: Taxable in India regardless of treaty and regardless of residence country. No treaty removes India's right to tax gains on Indian land.

Gains on shares of Indian companies for UAE residents (post-2007): Taxable in India under Section 115AD. The 2007 protocol to the India-UAE DTAA made India's right explicit. Not double non-taxation; single taxation by India.

Gains on Indian shares for Singapore and Mauritius residents (post-2017 acquisitions): Taxable in India under the post-2016 and 2017 treaty amendments. The old routes are closed for new investments.

The closing read

Double non-taxation for NRIs is a real and legally sound phenomenon in specific, well-defined situations. NRE interest is exempt in India by domestic statute and untaxed in most Gulf countries by the absence of a personal income tax. Indian mutual fund unit gains are zero-taxed for UAE and Singapore residents on the current ITAT position, backed by two clear tribunal decisions, because the treaty assigns the taxing right to those countries and those countries charge nothing. Grandfathered share holdings under the Mauritius treaty from before April 2016, and under the Singapore treaty from before April 2017, retain their original protection.

The limits are equally clear. Real estate is always taxed in India. Direct shares are taxable in India for UAE residents after the 2007 protocol. NRO interest is reduced by treaty but not zeroed. And any structure designed to manufacture the non-taxation outcome rather than arrive at it naturally through genuine residence and ownership is exposed to GAAR under Sections 95 to 102, the PPT introduced through the MLI, and the beneficial owner requirements built into every treaty's interest and dividend articles.

The practical guidance is this. If you genuinely live in the UAE or Singapore, hold investments in your own name, and can evidence your residence through a TRC, physical presence records, and a real home, the legitimate zero-tax outcomes on Indian mutual fund units are available to you. File your ITR-2 with the treaty position taken, the TRC on file, and Form 10F submitted. Work with a CA who understands both the treaty mechanics and the ITAT rulings that support your claim.

If you are trying to access those outcomes from India through an intermediary structure, the department has the tools to challenge it and the courts have consistently supported challenges where substance was absent.

Tax planning for NRIs is most durable when it follows life rather than leading it.

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Related guides

• DTAA relief for NRIs: treaty rates and the TRC process
• DTAA mechanics: TRC, Form 10F and beneficial owner requirements
• India-UAE DTAA deep dive for NRIs
• India-Singapore DTAA deep dive for NRIs
• Capital gains tax for NRIs: shares and mutual funds
• Tax on NRO interest
• Tax on Indian rental income for NRIs
• TDS for NRIs and refunds
• Reducing NRO TDS using the DTAA
• NRE, NRO and FCNR accounts explained
• Foreign tax credit and Form 67 for NRIs
• NRI residency and RNOR rules
• ITR filing for NRIs, AY 2026-27
• Lower TDS certificate (Form 13) for NRIs
• Responding to NRI tax notices

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Tax disclaimer: This guide is for general information only and does not constitute tax advice. Tax laws, treaty interpretations, and ITAT decisions change and may be subject to appeal or revision. The double non-taxation outcomes discussed here depend on individual facts, residency status, treaty applicability, and documentation. Before claiming any treaty benefit or filing a return based on a double non-taxation position, consult a qualified Chartered Accountant or tax adviser with knowledge of both Indian and relevant foreign tax law. The information in this guide reflects the law and tribunal decisions as understood at the date of publication (16 May 2026) and may not account for subsequent developments.