Capital Gains Tax on Dubai Property Sales for Indian Residents

Owning property abroad is a dream for many, and Dubai has emerged as a prime destination for Indian investors. However, selling such properties comes with tax obligations under Indian laws. For Indian residents, global income—including profits from selling overseas properties—is taxable in India. This blog explores the details of capital gains tax on Dubai property sales and the ways to manage these obligations effectively.

Understanding Capital Gains Tax

Capital gains tax is levied on the profit you earn from selling a capital asset, such as property. The taxable amount is calculated as the difference between the sale price and the purchase price.

For example, if you purchased a 2-bedroom townhouse in Emaar South for AED 1,400,000 and later sold it for AED 1,800,000, the profit or capital gain would be AED 400,000 (calculated as AED 1,800,000 - AED 1,400,000). This AED 400,000 is the taxable amount and will be subject to either short-term or long-term capital gains tax, depending on the holding period of the property on your Dubai property sales.  

Taxation Based on Holding Period

The duration for which you hold the property determines whether the profit falls under short-term or long-term capital gains.

Short-Term Capital Gains (STCG)

• If the property is sold within 24 months of purchase, the gains are treated as short-term capital gains (STCG).
• STCG is added to your total income and taxed as per your income tax slab rate. For high-income earners, this could mean paying up to 30% tax on the profit.

Long-Term Capital Gains (LTCG)

• If the property is held for more than 24 months, the profit qualifies as long-term capital gains (LTCG).
• The tax rate depends on the purchase date of the property: Properties purchased on or after July 23, 2024 are Taxed at a flat 12.5% without indexation. Properties purchased before July 23, 2024, are Taxed at 20% with the benefit of indexation.

What Is Indexation and How Does It Help?

Indexation modifies the property's original purchase price to reflect inflation. This adjustment increases the purchase price, thereby reducing the taxable capital gains.

• If you bought a property in 2015 for AED 1 million, the indexation benefit on Dubai property sales, will increase the purchase price based on inflation rates.
• As a result, the profit (sale price minus indexed purchase price) becomes lower, and you pay less tax.

Section 54 Exemption: A Smart Tax Strategy

Indian residents can save on capital gains tax by reinvesting the profits under Section 54 of the Income Tax Act.

• To claim this exemption, the capital gains on Dubai property sales must be reinvested in a residential asset in India within a specified period (typically within 2 years of the sale or 3 years for under-construction properties).
• This exemption applies only to long-term capital gains, making it an attractive option for those selling Dubai properties.

Key Considerations for Managing Tax Obligations

Maintain Proper Documentation

Accurate records are essential to ensure compliance and avoid penalties. Keep the following documents ready:

• Sale deed and purchase agreement.
• Bank statements showing payment for the property.
• Proof of expenses incurred during the sale, such as agent commissions or legal fees.
• Receipts for taxes paid in Dubai.

Double Taxation Avoidance Agreement (DTAA)

A double taxation avoidance agreement (DTAA) exists between India and the UAE. If you pay capital gains tax in Dubai, you can claim a foreign tax credit in India. However, the rules can be complex, and consulting a tax professional is advisable to understand your entitlements under DTAA.

Declare Foreign Assets in Your ITR

Indian residents must report their foreign assets and income on the Foreign Asset (FA) schedule of their income tax return. Non-disclosure of Dubai property sales can lead to severe penalties under the Black Money Act, which may go up to ₹10 lakh.

Seek Professional Advice

International tax laws are complex and vary depending on individual circumstances. Engaging a tax consultant or financial advisor ensures you understand your obligations and make informed decisions.

Capital Gains Tax in Dubai: A Comparison

In Dubai, personal property investments are generally tax-free. Neither rental income nor profits from the sale of property are taxed, provided the property is not part of a business activity conducted through a license.

This tax-free environment is a major advantage of investing in Dubai real estate. However, as an Indian resident, you must comply with Indian tax laws when selling your Dubai property.

Planning for the UAE Golden Visa

Selling one property to invest in another could make you eligible for the UAE Golden Visa, a coveted long-term residency program. To qualify, spend at least AED 2 million (₹5 crore) in Dubai real estate. This visa offers benefits like business opportunities, family sponsorship, and long-term stability in the UAE.

Conclusion: Dubai property sales

Selling a property in Dubai is a significant financial event, and understanding the tax implications is crucial for Indian residents. The right strategies, such as leveraging indexation, claiming exemptions under Section 54, and taking advantage of DTAA provisions, can help minimize tax liabilities.

Explore trends, opportunities, and expert insights shaping Dubai's rental market in 2025 in our latest blog post.