The victim, identified only as Shasthitharan, was murdered by his friend Sunil on Tuesday, media reports said.
Both the victim and accused are resident of Kerala.
According to media reports, both were living in the same building in a residential complex in Batha city center in different apartments in the capital.
The murder is said to have taken place in the early hours of Tuesday, when accused Sunil went into victim's room while he was fast asleep and stabbed him several times with a kitchen knife.
Police arrested Sunil hours after the incident. The victim was married and his wife Saumini lives in Kerala.
Shasthitharan had been living in Saudi Arabia since 1985. He had returned to Riyadh only 45 days ago following his annual vacation.
Sunil is believed to have confessed to the murder but the police are currently carrying out investigations to find out if more people were involved in the murder.
The motive of the killer is also not known.