An Indian employee in Oman after the personal income tax: residence in India, deemed residence and treaty credit

Oman enacted a personal income tax by Royal Decree 56/2025, in force from 1 January 2028: 5 per cent on net income above Omani rial (OMR) 42,000. It charges a tax resident (more than 183 days in Oman in a calendar year) on income from anywhere and a non-resident on income in Oman. An Indian citizen employed in Oman stays outside the Indian charge on his Oman salary unless section 6 of the Income-tax Act, 2025 makes him resident. Once Oman taxes him by reason of residence, limb (b) of the deemed-residence rule in section 6(7) is no longer met, and in a year he is resident in India he gets credit for Omani tax under Article 25(2) of the India-Oman Double Taxation Avoidance Agreement (DTAA).

What did Oman enact?

Royal Decree 56/2025 issues the Personal Income Tax Law of the Sultanate of Oman. It is dated 22 June 2025 (26 Dhu al-Hijja 1446) and appears in Official Gazette issue 1602. Article 4 of the Decree brings the Law into force on 1 January 2028, and Article 2 asks the Chairman of the Tax Authority to issue the executive regulation within a year of publication.

Who is taxed, and at what rate?

The Law taxes an individual, whether tax resident or not (Article 1). A tax resident is a person present in Oman for more than 183 days, continuous or intermittent, in the tax year, which is the calendar year. Article 6 charges a tax resident on income realised in Oman or outside it, and a non-resident on income realised in Oman.

Article 8 sets the rate at 5 per cent of taxable income. Article 1 defines "net income" as the amount of total income above OMR 42,000, and taxable income as net income less the exemptions, costs and losses the Law allows. The sources of total income in Article 7 include salaries and wages, rent, interest, share profits, gains on real estate, pensions and end-of-service gratuities, and Article 9 reads salary widely: pay in any form, allowances, bonuses and benefits in kind.

An employer withholds the tax on salary (Article 30), and a person whose total income exceeds OMR 42,000 files an annual return within six months of the end of the year (Article 33). A person ending residence files at least 60 days before leaving, unless departure is sudden (Article 37).

Article 25 exempts, among others, a first period of 18 months of a new resident's income realised outside Oman, once only (item 3), the employee's own contributions to up to two retirement schemes (item 5), education and healthcare costs for the family within limits the regulation sets (items 6 and 7), and compensation other than for lost pay (item 13). Items 2 and 4 are confined to Omani tax residents.

How is an Indian employee's residence decided under the Income-tax Act, 2025?

The day tests are those in the note on an Indian citizen abroad and tax residence under the Income-tax Act, 2025, and section 6(3)(b) removes the 60-day test for a citizen of India who leaves India in a tax year for employment outside India. Section 5(2) charges a non-resident only on income received, or accruing or arising, in India. Under section 9(3), salary accrues in India if earned in India, and pay for services rendered in India counts as earned there. Salary for work done in Oman is therefore outside the Indian charge for a non-resident.

A resident who is "not ordinarily resident" under section 6(13) is charged on foreign income only from a business controlled in or a profession set up in India (section 5(1)(c)). A resident and ordinarily resident is charged on income from everywhere (section 5(1)), and that is the case in which Omani tax needs relief.

Why does Oman's tax change the deemed-residence question?

A separate note on an Indian employee in Saudi Arabia or Kuwait sets out section 6(7): a citizen of India is deemed resident for a tax year if he is not liable to tax in any other country or territory due to his domicile, residence or similar criteria, and his total income other than income from foreign sources exceeds INR 15 lakh. Section 6(8) leaves the rule out where he is already resident under section 6(2) to (6). Where the country of work levies no tax on salary, limb (b) is the open question.

Oman supplies an answer from 1 January 2028. A person present more than 183 days is a tax resident by reason of his presence, and, where his total income is above OMR 42,000, Article 6 of the Law charges him on his worldwide income. That is liability to tax due to residence, so limb (b) of section 6(7) is not met on the face of the section and an Indian citizen working in Oman is not deemed resident in India under it, however large his Indian rent or interest. Until 31 December 2027 the Omani Law is not in force, so the previous position continues.

The India-Oman treaty tracks the same change. Article 4(1) defines a resident of a Contracting State as a person liable to tax there by reason of domicile, residence, place of management or a similar criterion. Before 2028 an Indian salaried in Oman had no clear claim to be an Omani resident under that definition; from 2028, with total income above OMR 42,000, he has.

What relief is there for Omani tax?

Where the employee is a non-resident of India the question does not arise, as the Omani salary is not taxed in India. Relief matters where he is a resident and ordinarily resident, for instance in the year he returns.

Under Article 17(1) of the India-Oman Double Taxation Avoidance Agreement (DTAA), signed on 2 April 1997, salary of a resident of one State is taxable only there unless the employment is exercised in the other State, in which case the other State may tax it. Article 17(2) removes the right where the stay is 183 days or less, the employer is not a resident of the other State and no permanent establishment bears the pay. Salary for work in Oman by an Oman-based employer may therefore be taxed in Oman.

Article 25(2) then provides that where a resident of India derives income which may be taxed in Oman, India allows as a deduction from the tax on his income an amount equal to the income tax paid in Oman, directly or by deduction, but not more than the part of the Indian tax, computed before the deduction, attributable to that income. Section 159(4) of the 2025 Act applies the Act to a person covered by an agreement only to the extent it is more beneficial to him. Section 160, the statutory foreign tax credit at the lower of the Indian rate and the foreign rate, applies only to a country with which there is no agreement under section 159, so it is not the route for Oman.

On the Omani side, Article 32 of the Law lets a person deduct foreign tax from the Omani tax due, up to that tax, subject to the controls and procedures the regulation sets, with no carry forward to later years. The Tax Authority's answer is that only foreign tax directly related to income taxable in Oman is deductible.

The Tax Authority's treaty list records a protocol signed on 27 January 2025 and in effect from 28 May 2025.

What do the figures look like?

An illustration. Every person and figure is hypothetical. The exchange rate of INR 230 to OMR 1 is illustrative, not a market rate, and Omani exemptions and deductions are assumed to be nil.

Case 1: tax year 2028-29, salary OMR 60,000 for calendar 2028,
300 days in Oman, 40 days in India in the tax year, Indian rent INR 14 lakh, NRO interest INR 3 lakh
  Omani net income        60,000 - 42,000 = OMR 18,000
  Omani tax at 5 per cent                  OMR 900 = INR 2.07 lakh
  Section 6(2) not met; section 6(7)(a) and (c): 14 + 3 = 17 lakh,
  above 15 lakh; (b) not met as he is taxed in Oman     non-resident
  Charged in India: INR 17 lakh. Salary INR 138 lakh: outside
  (sections 5(2) and 9(3)). Omani tax: no Indian credit needed

Case 2: Oman 1 January to 31 July 2028 at OMR 9,000 a month,
back in India 1 August 2028, resident in 2028-29 and assumed
ordinarily resident, for example after a short posting (a returning
employee who is not ordinarily resident is not charged on the salary)
  Omani residence 213 days: salary OMR 63,000, tax
  5 per cent of 21,000                     OMR 1,050
  Indian tax year 2028-29: in India 243 days     resident
  Salary 1 April to 31 July 2028: OMR 36,000 = INR 82.8 lakh
  Omani tax on that salary, apportioned 4/7: OMR 600 = INR 1.38 lakh
  Assume Indian tax attributable to INR 82.8 lakh: INR 20 lakh
  Article 25(2) credit: lower of the two       INR 1.38 lakh
  Indian tax left to pay: 20 - 1.38            INR 18.62 lakh

The credit leaves the Indian tax almost whole. The OMR 450 on January to March 2028 falls in Indian tax year 2027-28, in which the illustration assumes he was a non-resident, so no credit is claimed.

What remains unsettled?

First, section 6(7)(b) turns on being "not liable to tax" in another country. The Law charges a tax resident, but net income begins at OMR 42,000. Whether a resident of Oman earning less is "liable to tax" for section 6(7) is not answered in the Act, and we have seen no official guidance.

Second, Oman taxes a calendar year and India a year from 1 April. Article 25(2) allows the tax "paid" in Oman, and the Act and the treaty do not say how Omani tax for one calendar year is matched to two Indian tax years. The 4/7 apportionment in Case 2 is our assumption.

Third, the executive regulation and the 2025 protocol are not reflected above, so the 18-month exemption in Article 25(3) and the treatment of an end-of-service payment may change. The tie-breaker for a person resident of both States (Article 4(2) of the treaty) is not applied above.