US-Iran war: Will your return from Dubai affect tax residency?
What's the story
An Indian passport holder, who has been working in Dubai since mid-September, is considering a temporary return to India for safety reasons. The individual is concerned that their stay in India for the fiscal year 2025-26 could exceed 182 days. They are seeking clarification on whether they can claim that their return and extended stay are due to factors beyond their control under the Income Tax Act of 1961. So, will it affect their tax residency? Let's find out.
Tax residency
Understanding the basic residency condition
The Income Tax Act, 1961, determines an individual's residential status based on the number of days spent in India during a financial year. An individual is considered a resident if they stay in India for 182 days or more during the relevant fiscal year, or for 60 days or more during that year and 365 days or more during the preceding four fiscal years.
Exemptions
Are there any relaxations for overseas employment?
The law offers certain relaxations in cases where an individual leaves India for employment abroad or visits from abroad. In such cases, the 60 days threshold is increased to 182 days. However, these provisions only increase the relevant threshold up to 182 days and do not allow any further extension beyond that limit.
Consequences
What are the tax implications in India?
If the individual's stay in India is 182 days or more during the fiscal year, they would normally meet the basic residency condition under the Act. Worldwide taxation applies only if they qualify as a Resident and Ordinarily Resident (ROR) under the Act. If they do qualify as an ROR, their employment income earned in Dubai would also be part of their taxable income for FY25-26.
Tax treaty
Consideration of double taxation avoidance agreement
If the individual meets the 183-day presence requirement in 2026, and qualifies as a UAE tax resident, they may then consider the applicability of the India-UAE double taxation avoidance agreement (DTAA) for the overlapping period from January to March 2026. However, relief has only been considered in exceptional circumstances, such as during COVID-19 lockdowns and suspension of international flights.