Beat capital gains tax via 183 days UAE stay? Nilesh Shah flags loophole

Kotak AMC MD Nilesh Shah recently flagged a tax loophole that allows Indian citizens to legally avoid paying capital gains tax by temporarily shifting their tax residency to the UAE

Kotak Mahindra Asset Management Company (AMC)'s Managing Director Nilesh Shah has highlighted a tax strategy involving relocating to the United Arab Emirates (UAE) for 183 days to exploit a loophole in India's capital gains tax system. This approach leverages the Double Taxation Avoidance Agreement (DTAA) between India and the UAE, which exempts UAE tax residents from Indian capital gains tax on certain investments.

 

In a post on X Shah said the following: 

US levies hefty Exit tax on citizens becoming non-resident.  India is incentivising Citizens to shift tax residency and save on capital gains tax liability.  If you have significant capital gains tax liability on eligible securities, shift to UAE for more than 183 days.  Your… pic.twitter.com/PPkqT7ixFc

— Nilesh Shah (@NileshShah68) April 13, 2025

 

 

How the loophole works

Under the India-UAE Double Taxation Avoidance Agreement (DTAA), if you're considered a UAE resident (i.e., you live there for 183 days or more in a financial year), India cannot tax your capital gains on certain investments like:

 

Mutual funds

Government securities

Corporate bonds

 

Why? Because the UAE doesn’t levy personal income tax, and under the DTAA, capital gains are taxed only in the resident country — which becomes tax-free UAE, if you qualify.

 

What’s Being Advised?

As per the loophole, if you:

Have a large capital gains tax liability in India and you spend over 183 days in the UAE, you can legally avoid paying capital gains tax in India.

 

Nilesh Shah summarized the benefit humorously with the famous dialogue from Sholay:

 

“आम के आम, ??-ु??लियों के दाम”

(You get the mangoes and the seeds — in other words, you enjoy multiple benefits at once!)

 

He also quipped that:

“Your family holiday abroad will be funded from the savings on capital gains tax.”

 

How It Compares to the US

Nilesh contrasts India’s system with that of the United States, where:

 

If an American gives up US citizenship or becomes a non-resident, they are hit with a hefty "Exit Tax".

This ensures they pay taxes on their accrued wealth before leaving the U.S. tax net. India, on the other hand, is currently incentivizing high-net-worth individuals to move abroad and legally avoid taxes, even if only temporarily.

 

Shah’s post refers to a growing trend of high-net-worth individuals using tax treaties with countries like Singapore, UAE, Mauritius, Netherlands, and Portugal, where under the ‘residual clause’ of Article 13, gains from sale of mutual fund units are taxed only in the country of residence — and not in India.

 

In the Mumbai case, the ITAT ruled in favour of a Singapore resident who claimed exemption on over Rs 1.35 crore in capital gains. The tribunal held that mutual fund units are issued by trusts — not companies — and thus are not taxable under India’s capital gains provisions when such treaties apply.

 

Shah warned that this could have long-term consequences. “Today it might be a small amount but tomorrow it could open a floodgate,” he said. “We should amend the laws immediately… tax should be paid in the host country and credit taken in the reciprocal country.”

 

Counterpoint: Not So Simple?

Investor Samir Arora responded on X (Twitter), saying: This benefit only applies if you invest through NRE (Non-Resident External) funds, not regular NRO accounts. Also, you must be a non-resident at the time of investing — not just when selling. So, it's not as easily exploited as it might sound, but Shah's larger concern — tax equity and future abuse — remains valid.