I am an NRI residing in the UAE for many years and engaged in real estate brokerage services. Recently, I helped a UAE friend sell his immovable property in India, which I facilitated through my Indian contacts. The property was sold to another NRI. My friend paid my brokerage fees from the sale proceeds he received in his NRO account. I did not travel to India for this transaction. Is this income taxable in India?
– Name withheld on request
I assume that you qualify as a non-resident under the Indian income tax law. For a non-resident, the scope of taxation in India is limited to income that is received or deemed to be received in India, or income that accrues or arises or is deemed to accrue or arise in India.
From an accrual perspective, income is generally regarded as arising at the place where the services are performed. In your case, the brokerage services were rendered entirely from the UAE, without requiring your physical presence in India. Accordingly, such income may be regarded as having accrued in the UAE and not in India.
Further, while providing these services from outside India, you may have engaged Indian agents to facilitate the transaction. However, if such intermediaries are independent, this would not result in a business connection being established in India.
That said, since the brokerage has been credited to your NRO account in India, it would trigger taxation under Indian domestic law on a receipt basis, as income received in India is taxable in the hands of non-residents, irrespective of the place of accrual or deemed accrual.
Notwithstanding the above, as a non-resident, you may avail the benefits of the India-UAE Double Taxation Avoidance Agreement (DTAA), and choose to be governed by the provisions that are more beneficial to you.
Under the DTAA, brokerage income would generally fall within the scope of Article 7, which deals with business profits. As per Article 7, such income is taxable in India only if it is attributable to a permanent establishment (PE) in India.
Since you have not travelled to India in connection with this transaction and assuming that the Indian intermediaries are independent, it is reasonable to assume that no PE exists in India. In the absence of a PE, India would not have the right to tax such business income under the DTAA.
In summary, while the income may technically be taxable in India under domestic law due to receipt in the NRO account, relief should be available under the India–UAE DTAA. Accordingly, in the absence of a PE in India, the brokerage income should not be liable to tax in India.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
