'Shift to UAE for 183 days': Kotak AMC MD Nilesh Shah calls out capital gains tax loophole

India may not levy an “exit tax” like the United States but it’s slowly opening the door to what Nilesh Shah calls “seasonal non-residency,” a growing tax arbitrage that could soon become a flood.

Reacting to a Mumbai ITAT ruling that exempted ₹1.35 crore in capital gains for a Singapore-based investor under the India-Singapore tax treaty, the Kotak AMC MD took to X with a blunt message: “If you have significant capital gains tax liability on eligible securities, shift to UAE for more than 183 days. Your family holiday abroad will be funded from the savings on capital gains tax.”

He punctuated the advice with a popular reference from the film Sholay: “आम के आम, गुठलियों के दाम.”

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 ₹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.

While this may be legally valid, Shah warned it 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.”

Drawing from a Gujarati proverb, he added: “ઘરના છોકરા ઘંટી ચાટે અને પાડોશીને આટો”  (meaning "children at home lick the grinding stone while neighbors get the flour"), a critique of policies that penalize those who stay and reward those who leave.

Instead, Shah called for a level playing field between Indian taxpayers and genuine NRIs. “We must move toward fiscal prudence,” he wrote, “and ensure the tax burden is equitably shared. Let’s not incentivize flight over fairness.”