In a communique to the ministry, the federation has sought a clarification whether the NRIs are still eligible to get full exemption from capital gains tax under Indo-UAE double taxation agreement (DTA), which is currently under consideration. The DTA was signed in September, 1993, (which came into effect from April 1, 1994). On the basis of this treaty, a UAE NRI, MA Rafik, filed an application under advance ruling, seeking three benefits which were finally granted to him.

These included decrease in the rate of dividend tax from 20 per cent to 15 per cent, scaling down of debenture interest from 15 per cent to 12.5 per cent and full exemption of capital gains tax on movable assets like shares. These benefits are covered under Article 10, 11 and 13 of the Indo-UAE treay. Similarbenefits were given by the Authority for Advance Ruling (AAR) in more than 60 cases.

"The correctness of these judgments have come under a cloud as some quarters feel that the NRIs will not be covered under the DTA benefits as there is no tax on individuals in UAE," said chairman, Representative Committee, AIFTP, K Shivaram. Confusion still prevails among the tax practitioners on the exemptions granted under the DTA as the first treaty signed between the two countries in March, 1989, (which was restricted to `income derived from international air transport) was not suppressed by the DTA.

"We have asked the government to clarify the stance as the 1989 treaty was not succeeded by the double taxation treaty signed by the two countries," he said. According to him, the association not only wants to avoid uncertainty of law and litigation but also encourage investment from UAE. "Practically, every NRI staying in the UAE owns shares of Indian companies", Shivaram added.

In the past, the Central Board of DirectTaxes (CBDT) has issued circulars clarifying that income tax on dividends, interest and royalties payable to NRIs in the UAE will be deducted at the rates specified in the DTA. However, there has been no clarification on the exemption of capital gains tax.

The AIFTP said the Indian government should issue a circular stating that no capital gains tax will be levied on the NRIs even though individuals are not taxed in the UAE. "There is no guarantee that the UAE government will not impose a tax on individuals", the communique said. The Indo-UAE DTA should extend the tax benefit regardless of status of tax liability in the UAE.