Who the rule actually catches
The deemed-resident rule (Section 6(1A)) was added to close a specific gap: an Indian citizen could arrange their affairs so that they were a tax resident of nowhere, too few days in India to be resident here, and living in a country that levies no income tax, while still drawing a large income that arose in India. The rule says that if such a person's Indian income crosses ₹15 lakh in a year, India will treat them as resident even though their day-count alone wouldn't.
Two conditions have to hold together for it to bite, and missing either one keeps you out:
| Condition | What it means for a Gulf NRI |
|---|---|
| Indian income over ₹15 lakh | Total income other than foreign-source income crosses the line |
| Not liable to tax anywhere else | No country can tax you by reason of residence, true in a zero-tax Gulf state |
The income that counts towards the ₹15 lakh is everything other than your foreign income, so Indian rent, Indian interest, dividends from Indian companies, capital gains on Indian assets. Your Gulf salary does not go into that figure. This is why the rule lands much more naturally on someone whose money mostly comes from Indian property and investments than on a salaried professional whose income is earned abroad. One more guardrail matters: the rule does not apply at all if you are already a resident under the ordinary day-count test (Section 6(1)). It only fills the gap for people the day-count leaves as non-resident.
The carve-out for bona-fide Gulf salary earners
When this rule was announced it caused real alarm across the Gulf, because on a literal reading every UAE-based Indian who paid no tax in the Emirates seemed to be in scope. The government addressed this directly. A clarification issued at the time confirmed the provision was an anti-abuse measure aimed at high-Indian-income individuals shifting their stay to no-tax jurisdictions, and was not intended to tax the salary of bona-fide Indian workers in countries like those in the Middle East.
Two things take the salaried Gulf professional out of the worry. First, their Gulf salary is foreign-source income, so it never counts towards the ₹15 lakh Indian-income trigger in the first place. Most salaried NRIs simply don't cross the line on their Indian income alone. Second, even for someone who is caught, the clarification confirmed that income earned outside India is not brought into the Indian net merely because the person is deemed resident; it stays out unless it is derived from a business controlled in, or a profession set up in, India.
So the people who genuinely need to look hard at this are not the salaried majority. They are Gulf-based Indians with a heavy load of Indian-source income, large rental portfolios, substantial interest and dividends, recurring capital gains, sitting above ₹15 lakh while no other country can tax them. For them, the ₹15 lakh line is crossed and the only remaining question is the second condition: whether they are truly "not liable to tax" anywhere else.
What India can tax if you are caught
Being deemed resident is not the same as being taxed on your worldwide income, and this is the part most people get wrong. A person deemed resident under this rule is treated as Resident but Not Ordinarily Resident (Section 6(6)). The same protected category that shields a returning NRI in their first years back. RNOR status keeps genuine foreign income out of the Indian computation.
What India does tax for a deemed-resident RNOR is narrower than full residence:
| Income | Taxed in India as a deemed-resident RNOR? |
|---|---|
| Indian-source income (rent, interest, India gains) | Yes, taxed normally |
| Income from a business controlled in / profession set up in India | Yes |
| Genuine foreign income (Gulf salary, foreign deposits) | No, stays outside the net |
The practical effect is that the rule mostly brings you into the Indian filing system and taxes the Indian income you already had. It does not reach across to your Gulf earnings or your overseas assets. "Income from foreign sources" is defined to mean income that arises outside India, other than income from a business controlled in or a profession set up in India, and that is exactly what stays out. For a Gulf NRI with high Indian rent and investment income, the real consequence of being deemed resident is usually about how that Indian income is taxed and reported, not a sudden tax on money earned in the Emirates.
A worked example: two Dubai residents, only one in scope
Faisal and Imran both live in Dubai, both are Indian citizens, and neither pays personal tax in the UAE. They are caught very differently by the rule, and the contrast is the whole point.
Faisal is a salaried engineer earning the equivalent of ₹90 lakh a year in Dubai, with about ₹6 lakh of Indian income, interest on a few NRO deposits and a small dividend. His Dubai salary is foreign-source income, so it never enters the ₹15 lakh test; on his Indian income alone he is at ₹6 lakh, well below the line. The deemed-resident rule simply doesn't reach him, and his Dubai earnings stay entirely outside India regardless.
Imran left a corporate job years ago and lives off his Indian portfolio: roughly ₹14 lakh of rent from three Mumbai flats, ₹5 lakh of interest, and ₹3 lakh of dividends, about ₹22 lakh of Indian income in 2026-27, with no salary anywhere. Because that ₹22 lakh is all Indian-source and sits above ₹15 lakh, and no country taxes him by residence, both conditions are met and he is deemed resident for the year (Section 6(1A)). But being deemed resident makes him RNOR (Section 6(6)), not a full resident, so India taxes the ₹22 lakh of Indian income, which was already taxable here anyway, and leaves any genuine foreign income alone. The rule changes his filing status, not the reach of Indian tax over his foreign money. Where Imran can show he is a UAE tax resident, a TRC lets him answer the "not liable to tax" question on documented ground and claim the treaty rate on his Indian dividends.
Getting a UAE Tax Residency Certificate to settle the "liable to tax" question
The second limb of the rule, "not liable to tax in any other country", is where a UAE Tax Residency Certificate (TRC) does its work, and it is the single most useful document for a UAE-based NRI in this position.
The tax department's original argument was blunt: the UAE has no personal income tax, so a UAE resident is "not liable to tax" there, which both satisfies the deemed-resident condition and, separately, can be used to deny treaty benefits. That reading has been rejected. The settled position, confirmed by tribunals, is that "liable to tax" refers to a country's legal right to tax a person, not to whether tax is actually paid. A UAE resident falls within the UAE's taxing jurisdiction and is therefore "liable to tax" in the relevant sense, even at a nil rate. The Finance Act 2021 wrote a definition of "liable to tax" into the Act (Section 2(29A)) to support exactly this kind of treaty position.
A TRC is the proof. Issued by the UAE Federal Tax Authority, it certifies that you are a tax resident of the UAE under the India-UAE treaty (Article 4). With it, you can establish treaty residence, claim DTAA benefits such as the lower 10% rate on Indian dividends, and answer the "not liable to tax" question on a documented footing rather than an assertion. The treaty's own residence test turns on real presence, broadly 183 days in the UAE in the calendar year, so the TRC and your day-count are read together. Where Form 10F is needed to claim a treaty rate alongside the TRC, note that for FY 2026-27 the form is filed electronically as Form 41 under the Income-tax Act 2025, though it is still widely referred to as Form 10F.