Zerodha gets benefit of India-UAE double taxation avoidance agreement

Bengaluru: Vijay Mariappan Austin Prakash, a founding angel and director (strategy) of Bengaluru based trading platform Zerodha, a startup unicorn, has won an Income Tax appeal in the Income Tax Appellate Tribunal (ITAT), Visakhapatnam, against an earlier order of the Assistant Commissioner of Income Tax (ACIT), Bengaluru.

The ACIT had passed a final assessment order on December 10, 2024 assessing Austin’s income from Zerodha at Rs.8,28,36,896 under Section 144C(13) of the Income Tax Act. Austin had claimed exemption from taxation on this income as he was not a permanent resident of India. The Assessing Officer had rejected this claim.

The matter went to appeal in the ITAT, where Austin claimed that the income of Rs.8,28,36,296 was exempt under the India-UAE DTAA (Double Taxation Avoidance Agreement). The Assessing Officer had however argued that Austin was earlier being paid salary by Zerodha and was later appointed as a consultant from October 1, 2020 “in order to avoid paying tax in India.”

The ITAT however in its order has said that “These observations of the Ld.AO do not have any merit due to the fact that change of the employment to consultant is with regard to the agreement between the concerned parties.” Since Austin was not permanently settled in India, the ITAT held that he was entitled to the exemption under the India-UAE DTAA. Article 14 to India-UAE DTAA defines professional services, it is an inclusive definition.

In its final order, the ITAT said that “The professional services provided by the assessee is covered under the term professional services as defined in Article 14(2) of DTAA. We therefore of the view that assessee is entitled to avail the benefit under 90(2) of the Act, where the income of the assessee shall not be taxable in India in the absence of permanent establishment in India. Accordingly, grounds raised by the assessee is allowed.”