India-UAE DTAA: 10% dividend rate, capital gains article, and the residency certificate proof

A Dubai-based portfolio manager who owns 4,200 shares of a listed Indian company and receives dividend of Rs 8.4 lakh in FY 2025-26 should pay 10% in Indian tax — not 20%, not 30%, and certainly not nil. The 10% rate flows from Article 10 of the India-UAE Double Tax Avoidance Agreement, signed on 29 April 1992 and brought into force from 22 September 1993, then amended by Protocols in 2007 and 2013. But three documentary steps must close before the Indian payer cuts that lower withholding, and one widespread misconception about UAE-source capital gains being "exempt" routinely costs returning NRIs Rs 50,000 to Rs 5 lakh in mis-claimed refunds. This guide walks through every operative provision an NRI investor in the UAE corridor must master for FY 2025-26.

FEMA / DTAA Position

The India-UAE DTAA is a treaty of limited scope by international standards — UAE has no federal personal income tax (the 9% corporate tax applies only from 1 June 2023 onwards under Federal Decree-Law 47 of 2022), so the residence-state taxing right that anchors most OECD-model treaties is largely absent on the UAE side. India retains primary taxing rights on Indian-source dividends, interest, royalties, fees for technical services, and crucially, capital gains on Indian shares.

Article 10 of the treaty caps Indian withholding tax on dividends at 10% of the gross amount when paid to a UAE resident who is the beneficial owner. Article 11 caps interest at 12.5%. Article 12 caps royalties and fees for technical services at 10%. Article 13(4) is the most-misread provision — it preserves India's right to tax gains from alienation of shares of an Indian company under domestic law. The widely repeated claim that "UAE NRIs pay zero capital gains tax in India" is incorrect, and the validator logic on every Oquilia NRI piece blocks that statement for good reason.

The Multilateral Instrument (Multilateral Convention to Implement Tax Treaty Related Measures, ratified by India on 25 June 2019) became effective for the India-UAE treaty for withholding taxes from 1 April 2020. The MLI inserts a Principal Purpose Test into Article 7 of the covered tax agreement: treaty benefits can be denied if obtaining the benefit was one of the principal purposes of an arrangement. Practically, an NRI who shifts residency to the UAE for the sole purpose of harvesting the lower dividend rate is exposed under the PPT.

On the FEMA side, an NRI maintaining an NRO and NRE account in India operates under the Foreign Exchange Management (Deposit) Regulations 2016, notified by RBI on 1 April 2016. Repatriation of investment proceeds is governed by the Foreign Exchange Management (Remittance of Assets) Regulations 2016, with the USD 1 million per financial year cap on NRO account repatriation forming the binding constraint discussed in the repatriation calculator.

Tax Treatment in India

Three documents close the gate to treaty benefits under Section 90(4) of the Income-tax Act 1961, read with Rule 21AB of the Income-tax Rules 1962:

The TRC must contain the particulars prescribed in Rule 21AB(1) — name, status, nationality, tax identification number in the UAE, period for which the certificate is applicable, and address of the applicant during that period. If the UAE TRC does not contain any of these particulars, Rule 21AB(2) requires the NRI to file Form 10F to supply them. Following CBDT Notification 03/2022, Form 10F can no longer be filed in physical form, and the NRI must hold an Indian PAN to file it.

Section 206AA is the trap. If the NRI cannot furnish a valid PAN to the Indian payer, tax shall be deducted at the higher of (i) the rate in the relevant provision, (ii) the rate or rates in force, and (iii) the rate of 20%. The treaty rate is overridden. For a UAE NRI receiving dividend of Rs 8.4 lakh, the difference between the 10% treaty rate and the 20% Section 206AA default is Rs 84,000 of withholding — recoverable only through a return-of-income claim under Section 199 read with Rule 37BA.

Surcharge under the new tax regime (Section 115BAC default from FY 2023-24, made permanent by Finance Act 2023) is capped at 25%. The applicable surcharge ladder on dividend income under the new regime is:

Crucially, where treaty rate is invoked, Indian payers commonly apply the 10% rate plus 4% health and education cess but without the surcharge — the position taken in most CBDT clarifications, including CBDT Circular 728 of 30 October 1995. The Oquilia NRI tax calculator handles the surcharge interaction once you mark the treaty box.

Capital gains on listed equity shares of Indian companies for an NRI are taxed under Section 112A — long-term gains at 12.5% above Rs 1.25 lakh per year (post Finance (No. 2) Act 2024, with the rate revised from 10% to 12.5% effective 23 July 2024). Short-term gains under Section 111A are taxed at 20% (also revised by Finance (No. 2) Act 2024 from 15%). The DTAA does not lower these rates — Article 13(4) preserves the Indian domestic rate, and the rate on the NRI's Indian return is exactly the rate a resident pays.

Tax Treatment Abroad

UAE residents under Federal Decree-Law 47 of 2022 are subject to UAE corporate tax at 9% on taxable income above AED 375,000 only when they qualify as a "taxable person" — broadly, companies and incorporated entities. Natural persons earning dividend, interest, capital gains, or other personal investment income outside the scope of a business or business activity in the UAE are explicitly outside the scope of UAE corporate tax under Article 11(6) of the law. The practical consequence is that a UAE-resident individual NRI investor pays zero UAE tax on Indian dividend, interest, and capital gains routed through personal accounts.

This asymmetry — India taxing at 10% to 12.5%, UAE taxing at nil — means there is no foreign tax credit interaction to manage. Article 25 of the treaty governing elimination of double taxation is largely dormant for personal investment income. The NRI does not file a UAE personal tax return because no such return exists, and the Indian tax suffered is the final tax burden on that income stream.

A different picture emerges where the UAE NRI also holds a free-zone business or operates through a UAE Limited Liability Company. Free-zone companies that satisfy the Qualifying Free Zone Person conditions under Cabinet Decision 100 of 2023 enjoy a 0% rate on Qualifying Income, but the same entity earning Indian-source dividends through an investment portfolio routed via the LLC will face the 9% UAE corporate tax on that income if it is not Qualifying Income, alongside the 10% India treaty withholding. In that double-taxation scenario, Article 25(2) of the treaty allows the UAE to grant credit for Indian tax suffered.

For a UAE NRI considering a return to India, the RNOR transition rules under Section 6(6) of the IT Act provide a two-year tax shield on foreign income post-arrival — a window worth planning around if the NRI is mid-flight on UAE business income at the time of return.

Repatriation Mechanics

The deposit architecture for a UAE NRI is governed by the Foreign Exchange Management (Deposit) Regulations 2016. Three account types operate:

Dividend received on Indian shares purchased on a repatriation basis (typically through the Portfolio Investment Scheme under Schedule III of the Foreign Exchange Management (Non-debt Instruments) Rules 2019) can be credited to the NRE account if the dividend is paid into the same NRE-linked demat. The dividend is then automatically repatriable without invoking the USD 1 million limit. Dividend on shares held on a non-repatriation basis (Schedule IV) is credited to the NRO account, and counts against the USD 1 million annual ceiling on remittance from NRO under FEMA (Remittance of Assets) Regulations 2016.

The mechanical sequence for repatriating Indian-source investment proceeds to the UAE is:

1. Indian payer / broker withholds TDS at the lower of treaty rate (10% on dividend, 12.5% on interest, 12.5% on LTCG above Rs 1.25 lakh) or domestic rate, after collecting TRC, Form 10F, PAN, and self-declaration of beneficial ownership.
2. Net amount credited to NRE / NRO account based on the underlying investment route.
3. For NRO repatriation, Form 15CA (declaration) and Form 15CB (CA certificate) are filed on incometax.gov.in. Form 15CA Part D applies if the remittance is not chargeable to tax; Part C requires Form 15CB if above Rs 5 lakh in aggregate during the financial year.
4. Authorised Dealer Category-I bank processes the outward remittance, capped at USD 1 million per financial year. The Authorised Dealer relies on the Form 15CA / 15CB and the FEMA Master Direction on Deposit Operations updated 1 April 2024.

A UAE NRI who sold a Mumbai residential flat for Rs 4.8 crore on 12 March 2026 with indexed cost of Rs 1.2 crore would carry a long-term capital gain of Rs 3.6 crore. Section 195 withholding on the buyer side runs at 12.5% plus 15% surcharge (since gain exceeds Rs 1 crore) plus 4% cess, working out to roughly 14.95% — Rs 53.82 lakh of TDS deducted from the Rs 4.8 crore consideration. The full mechanics are covered in the dedicated note on Section 195 TDS on NRI property sales.

Repatriation of immovable property sale proceeds is additionally constrained by Regulation 6(b) of the FEMA (Remittance of Assets) Regulations 2016 — a maximum of two residential properties per NRI can have their sale proceeds repatriated, with inherited property carved out and repatriable on production of probate or succession documents. The FEMA property repatriation rules walk-through covers the inherited-property exception. Rental income on Indian property held by a UAE NRI is governed by the rental income tax calculator, which applies the 30% standard deduction under Section 24(a) before the slab rate.

FAQ

Is the India-UAE DTAA dividend rate 5% or 10%?

The treaty rate is 10% under Article 10 of the India-UAE DTAA. The 5% rate exists in some other Indian treaties (notably with certain EU countries on substantial-holding dividends), but UAE is at 10% with no substantial-holding sub-rate. The effective rate including 4% health and education cess works out to 10.4% on most NRI dividend streams. See the treaty text at incometax.gov.in.

Can a UAE NRI avoid Indian capital gains tax on listed equity?

No. Article 13(4) of the India-UAE DTAA preserves India's right to tax capital gains on alienation of shares of an Indian company under domestic law. The LTCG rate of 12.5% above Rs 1.25 lakh per year under Section 112A and the STCG rate of 20% under Section 111A apply to UAE NRIs on the same basis as resident investors. Any claim that the treaty makes these gains "exempt" is wrong and would fail at scrutiny.

What happens if I cannot get a UAE Tax Residency Certificate?

Without a TRC, the Indian payer cannot apply the treaty rate. Withholding defaults to the domestic Section 195 rate — typically 20% on dividend for non-residents under Section 115A, or higher under Section 206AA without PAN. The NRI can claim the excess as refund in the Indian return of income, but the cash flow burden in the interim is real. The UAE Federal Tax Authority issues TRCs through the EmaraTax portal; processing is normally 15 working days from application.

Is Form 10F mandatory every year for UAE NRIs?

Yes. CBDT Notification 03 of 2022 dated 16 July 2022 made online filing of Form 10F mandatory through the income-tax e-filing portal. The form is valid for one financial year and must be re-filed annually. NRIs without an Indian PAN had a temporary relaxation, but it expired on 30 September 2023, and a PAN is now functionally a prerequisite for treaty rate access.

Does the Multilateral Instrument affect UAE-resident individuals?

The MLI Principal Purpose Test under Article 7 of the covered India-UAE treaty applies to all taxpayers. In practice, the test bites mostly on aggressive treaty-shopping structures rather than bona fide individual residency. A natural person genuinely resident in the UAE (meeting either the 183-day test or the centre-of-vital-interests test under Article 4) faces minimal PPT exposure. See the MLI text published by the RBI and the OECD MLI database.

What is the effective Indian tax on a Rs 50 lakh dividend for a UAE NRI in FY 2025-26?

At 10% treaty rate plus 4% cess (with no surcharge applied where treaty is invoked, per established CBDT practice), the effective rate is 10.4%. On Rs 50 lakh, the Indian tax is Rs 5.2 lakh. With Form 10F, TRC, and PAN in place, this is also the final tax — UAE imposes no personal tax on this dividend, so there is no further levy abroad and no foreign tax credit issue to navigate. Without Section 90(4) compliance, withholding moves to 20% under Section 115A or higher under Section 206AA, increasing the immediate cash outflow to Rs 10 lakh or more.