1. The Residency Tightrope
Since Bahrain levies no income tax, your primary tax risk is accidentally becoming an Indian Tax Resident.
2. The "Deemed Resident" Trap
Section 6(1A) of Indian IT Act
Because you are not liable to tax in Bahrain (due to domestic tax laws), you fit the criteria for a "Deemed Resident" of India if your Indian Income exceeds ₹15 Lakhs.
The Triggers
- • Indian Citizen.
- • Indian Sourced Income > ₹15 Lakhs.
- • Not liable to tax in Bahrain (0% Tax).
The Impact (RNOR)
You become Resident but Not Ordinarily Resident (RNOR).
Safe: Bahrain Salary remains tax-free in India.
Risk: Income from a business controlled from India becomes taxable.
3. End of Service Indemnity (EOSI)
Bahrain Labor Law (Article 116) mandates a "Leaving Indemnity" for expats who are not covered by the Social Insurance Organization (SIO).
Calculation Rule (Basic Salary)
- First 3 Years: 15 days wages per year.
- After 3 Years: 1 month wages per year.
- Basis: Calculated on the last wage drawn.
Taxability in India
If received while you are a Non-Resident, this is a capital receipt abroad and Not Taxable in India.
Receive it in your Bahraini bank account first.
Hypothetical Accumulation (Basic Salary: 1,000 BHD)
4. Income Stream Matrix
Bahrain Salary
👷Bahrain: 0% Tax.
India: Exempt.
NRE Interest
🏦Bahrain: 0% Tax (No tax on foreign income).
India: Tax-Free (Section 10(4)).
NRO / Rent
🏠Bahrain: 0% Tax.
India: Taxable at slab rates / TDS 30%.
The Stability Peg
The Bahraini Dinar (BHD) is pegged to the US Dollar at a fixed rate of 1 BHD ≈ 2.659 USD.
It is the second-highest valued currency unit in the world. This provides a natural hedge against INR depreciation, boosting the effective yield of your tax-free savings.