I am a non-resident Indian living in the UAE since February 2024 for employment. I regularly invest in listed shares and mutual funds in India. While filing my Indian income-tax return for FY 2024-25, I mistakenly claimed tax exemption under the India-UAE tax treaty on capital gains from both investments and claimed a refund. Can I correct my exemption claim by filing a revised return?
– Name withheld on request
Assuming you qualified as a non-resident (NR) of India for FY 2024-25 under the Income-tax Act, 1961, your income was taxable in India if it was received or deemed to be received in India, or accrued or arose, or was deemed to accrue or arise, in India.
Since the shares and mutual fund units were capital assets situated in India, capital gains from their transfer were taxable under Indian domestic tax law. However, as a non-resident, you could claim benefits under the India-UAE Double Taxation Avoidance Agreement (DTAA), subject to obtaining a valid Tax Residency Certificate (TRC) issued by the UAE Federal Tax Authority for FY 2024-25 and furnishing Form 10F.
Treaty benefits
Under the DTAA, capital gains from the transfer of shares in an Indian company are taxable in India. In contrast, gains from the transfer of mutual fund units fall under the residual clause of the treaty article dealing with capital gains. These are taxable only in the country where the transferor is resident, which is the UAE in your case.
Accordingly, the exemption claimed on capital gains from mutual fund units was correct under the treaty, whereas the exemption claimed on gains from shares of Indian companies was incorrect.
Correcting the error
You can no longer correct the error by filing a revised return for FY 2024-25, as the deadline was 31 December 2025.
Alternatively, you may file an updated return (ITR-U) to correct the exemption incorrectly claimed on capital gains from shares, subject to the applicable eligibility conditions. You can report the taxable capital gains and pay the resulting tax, along with applicable interest under sections 234B and 234C.
Filing an updated return also requires payment of additional income tax. If you file it during FY 2026-27, the additional income tax would be 25% of the aggregate tax and interest payable. If you file after FY 2026-27, the applicable rate will depend on when the updated return is filed.