I have a family trading business in India that is run as a limited liability partnership (LLP) where I am one of the partners. I am planning to start a business in the UAE and hence will be moving there shortly. However, I will keep shuttling between India and the UAE for the next one or two years till I can bring my family to the UAE. I plan to become a sleeping partner in the LLP initially and then leave the partnership completely over time. Till the time I am a sleeping partner, for counting the ₹15 lakh income limit, will my LLP profit share also be counted?
—Name withheld on request.
I assume that you are concerned about the Indian income threshold of ₹15 lakh since you would be visiting India frequently in the next two years and, therefore, you may end up becoming a tax resident of India. For your benefit, your tax residence for FY 2024-25 and FY 2025-26 is discussed below.
During FY 2024-25, you will be shifting your base to the UAE to start your own business. In the financial year in which a person leaves India for the purposes of employment, they have to verify if the stay in India has amounted to 182 days or more. If the stay in India is more than or equal to 182 days, then this person is treated as a tax resident in India. As per certain judicial decisions, ‘employment’ includes self-employment such as business to be conducted by the person outside India. You may take professional advice in this regard, and if you consider yourself as emigrating from India for the purpose of employment, then you would become a non-resident if your period of stay in India during FY 2024-25 is below 182 days. If you become a non-resident on these grounds, then you need not worry about the Indian income threshold of ₹15 lakh since it does not apply to you.
Here, it is necessary to determine whether your share of LLP profit (though exempt) is also to be included towards computing the Indian income. Exempt incomes do not form part of the total income per se, therefore, the share of profit from the LLP would not count towards computing the threshold of ₹15 lakh. During FY 2025-26, even if your other income exceeds ₹15 lakh and you qualify as RNOR (resident but not ordinary resident) because your period of visit to India is below 182 days, your UAE income would not become taxable in India so far as you conduct the business activities from the UAE.
Also, persons staying in the UAE are now ‘liable to tax’ under the new tax law and, therefore, the condition of deemed tax residence in India does not apply to them.
Harshal Bhuta is a partner at chartered accountancy firm P.R. Bhuta & Co.
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Published: 20 May 2024, 02:56 PM IST