Indian Tax Residency UAE 2025-26: Day Counts, RNOR & DTAA Rules

What Happened?

With increasing numbers of Indian professionals and businesspeople relocating to the UAE, the Indian Income Tax framework for determining tax residency has become critical. As of September 2026, the Income Tax Act 2025 continues to apply strict residency tests that determine whether you remain an Indian tax resident even after moving abroad. Your residency status directly impacts how much Indian income tax you owe and which income sources get taxed in India.

Background & Legal Context

Indian tax residency is governed primarily by Section 6 of the Income Tax Act 2025 (which retained the residency framework from the 1961 Act). The residency status determines whether you pay tax on your global income (as a resident) or only Indian-sourced income (as a non-resident).

Key Residency Tests Under Section 6, IT Act 2025:

• Test 1 – Ordinary Residency Test (ORT): You are a resident if you satisfy BOTH conditions in the relevant financial year:
  • You were in India for 182 days or more in that financial year (FY 2025-26 = April 2025 to March 2026), OR
  • You were in India for 60 days or more in that FY AND 365 days or more in the preceding 4 financial years
• Test 2 – Resident Not Ordinarily Resident (RNOR): You fail the ORT but were in India for 182+ days in 4 out of the preceding 10 financial years. As RNOR, your global income is taxable, but with certain exemptions on foreign-sourced income (Section 94(2A), IT Act 2025).
• Non-Resident (NR): You fail both tests. Only Indian-sourced income is taxable.

For Assessment Year (AY) 2025-26 (covering FY April 2025-March 2026), if you moved to UAE during 2025, your residency status depends on how many days you spent in India during this period.

India-UAE Tax Treaty (DTAA):

The Double Taxation Avoidance Agreement (DTAA) between India and UAE provides relief:

• If you are a UAE resident under UAE tax law AND an Indian resident under Indian tax law, the tie-breaker rules in Article 4 of the DTAA determine your residency for treaty purposes.
• Generally, your country of permanent home determines residency. If both countries have a permanent home, your centre of vital interests (family, work, etc.) decides.
• The DTAA prevents double taxation on the same income in both countries, but does NOT eliminate Indian tax if India claims residency.

What Does This Mean for You?

Scenario 1: You Moved to UAE in April 2025 (Newly Relocated)

For AY 2025-26, if you spent 182+ days in India between April 2025-March 2026, you remain an Indian resident. This means:

• Your worldwide income (UAE salary, UAE rental income, Indian income) is taxable in India.
• You must file Indian Income Tax Return by 31 July 2026 for AY 2025-26.
• The DTAA provides foreign tax credit for taxes paid in UAE on UAE-sourced income, but double taxation may still occur on salary earned in UAE.

Scenario 2: You Were Already in UAE (RNOR Status)

If you moved to UAE before April 2025 and have been in India for 182+ days in 4 out of the last 10 financial years (up to March 2025), you are classified as RNOR for AY 2025-26. This provides relief:

• Only Indian-sourced income and foreign-sourced income received/deemed received in India is taxable (Section 94(2A), IT Act 2025).
• Your UAE salary is NOT taxable in India if not remitted to India.
• But rental income from Indian property, business income from India, and income received in India are still taxable.

Scenario 3: Non-Resident Status (Clean Break)

If you spent fewer than 182 days in India in FY 2025-26 AND fewer than 182 days in 4 of the last 10 years, you are a Non-Resident. Impact:

• Only Indian-sourced income is taxable in India.
• Your UAE salary: NOT taxable in India.
• Indian rental income, business income: Taxable in India.
• Capital gains from sale of Indian property: Taxable in India.

Common Mistake – Day Counting:

Taxpayers often miscount physical presence days. A "day in India" means arriving and physically present on that day – not counting partial days or arrival/departure dates differently per the Income Tax Rules 2025. Even if you visited India for just 2-3 days, count each calendar day. Many professionals exceed 182 days unintentionally and miss claiming RNOR or Non-Resident status.

What Should You Do Now?

Step 1: Maintain Accurate Day Records (Ongoing)

From now on, keep a detailed record of every day spent in India and UAE. Use flight tickets, visa stamps, hotel bookings, and property access records. For AY 2025-26, if you have not kept records, reconstruct them immediately using travel documents.

Step 2: Determine Your Residency Status

For AY 2025-26:

• Count days in India (FY April 2025-March 2026). If 182+, you are a resident.
• If under 182 days, check if you spent 182+ days in 4 of the preceding 10 FYs. If yes, you are RNOR.
• If neither condition is met, you are Non-Resident.

Step 3: File ITR and Claim Appropriate Exemptions

• Residents: File ITR-2 (for individuals with global income). Report worldwide income and claim DTAA relief (Form 67/67A) for foreign taxes paid.
• RNOR: File ITR-2. Report only Indian-sourced income and foreign-sourced income received in India. Claim exemption under Section 94(2A) for excluded foreign income.
• Non-Residents: File ITR-2 (or ITR-1 if no business income). Report only Indian-sourced income. Claim DTAA relief if applicable.

Step 4: Plan for Future Years (AY 2026-27 onwards)

If you want to become a Non-Resident from AY 2026-27:

• Ensure you spend fewer than 182 days in India in FY 2025-26 (Apr 2025-Mar 2026).
• Even if residency is locked for AY 2025-26, changing day count in FY 2026-27 will change your status in AY 2026-27.
• Plan visa and travel strategically to avoid crossing the 182-day threshold.

Step 5: Consider DTAA Benefits Carefully

Do not assume DTAA automatically avoids double taxation. The treaty only applies if both countries have taxed the same income. File both Indian ITR and UAE tax return (if required) to claim foreign tax credit benefits properly.

Key Takeaways

• Residency Rule 1 (Simple): Spend 182+ days in India in FY 2025-26? You are a resident and pay tax on worldwide income under Section 6(1), IT Act 2025.
• Residency Rule 2 (RNOR): Spend less than 182 days but have been in India 182+ days in 4 of the last 10 years? You are RNOR and get exemption on excluded foreign income under Section 94(2A), IT Act 2025.
• Residency Rule 3 (Non-Resident): Neither condition met? You are a Non-Resident and only Indian-sourced income is taxed. This is most tax-efficient if you genuinely relocate to UAE.
• DTAA Trap: The India-UAE DTAA provides relief from double taxation, but does NOT prevent India from taxing you as a resident. Plan your residency status first, then use DTAA to reduce double tax.
• Common Error: Miscounting days in India or forgetting to file separate RNOR disclosure on ITR leads to penalties and reassessment. Maintain meticulous records and claim the correct status on ITR-2 for AY 2025-26 by 31 July 2026.

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