Tax On Capital Gains Under DTAA Between UAE And India

What is the purpose of having an Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with UAE by India (DTAA) between UAE and India?

In the Present Era of cross border transactions across the globe, the effect of Taxation is one of the important considerations for any Trade and Investment decisions in another countries.
Where a taxpayer is resident in one country and but has source of income situated in another country, it gives rise to possible double taxation.
DTAA lays down rules for taxation of the income by the Source country and the residence country.
The Provisions of DTAA are compared with domestic law, assessee can opt for anyone which is beneficial to him.

This treaty was entered into by UAE and India with an aim to promote their economic relations and prevent tax evasion.

Scope

This DTAA agreement shall apply to persons who are residents of one or both of the Contracting States (UAE or India).

Taxes Covered

This agreement applies on the following existing taxes:

Income Tax, Corporation Tax and Wealth Tax in UAE
Income Tax and Wealth Tax in India

Following is the summary of the DTAA between UAE and India with respect to capital gains:

Area of Income	Income earned in	Income taxed in
Capital Gains – Transfer of immovable property	Contracting state where he is a resident	In the contracting state where the property is situated
Capital Gains – Transfer of Movable property forming part of business property of PE of enterprise	Contracting state where the enterprise is situated	In the other state where the PE is situated.
Capital Gains – Transfer of shares of a company	In the state where the company is a resident	– In the state where company’s property, which consists principally of immovable property, is situated – In other cases, where the company is a resident
Capital Gains – Transfer of any property other than above	In the contracting state where the transferor is resident	In the same state where the transferor is resident

Article 13 – Capital Gains

Gains derived by a resident of a contracting state from the transfer of ownership of immovable property may be taxed in other state in which the property is situated.
Gains from the transfer of ownership of movable property forming part of business property of a PE which an enterprise of a contracting state has in other state or of movable property available for the purpose of performing independent personal services may be taxed in that other state.
Gains from transfer of ownership of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the contracting state may be taxed in that state. However in other cases, it may be taxed in that state where the company is a resident.
Gains from transfer of any other property shall be taxable only in the state of which the transferor is a resident.

Elimination of Double Taxation

Where a resident of India derives income or owns capital which, in accordance with the provisions of the agreement, may be taxed in UAE, India shall allow as a deduction from the tax on the income/capital of that resident an amount equal to Income tax or capital tax paid in UAE whether directly or by deduction.
Where a resident of UAE which in accordance with the agreement may be taxed in India, UAE shall allow as a deduction from the tax on income of that person an amount equal to income tax paid in India.
However such deduction shall not exceed that part of Income tax or capital tax as computed before the deduction is given.

Exchange of Information between the tax authorities of UAE and India

The competent authorities of contracting state shall exchange such information as is necessary for carrying out the provisions of the agreement or for the prevention or detection of evasion of taxes.

Limitation of Benefits

An entity which is a resident of a contracting state shall not be entitled to the benefits of this agreement if the main purpose of creation of such entity was to obtain the benefits of this agreement.

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