Double taxation can be a concerning issue for all income taxpayers who earn in foreign currencies. There are chances that both resident and home countries levy taxes according to their tax slabs. The Indian government has entered into the Double Tax Avoidance Agreements (DTAA) to counter this problem by providing relief and tax credits.
A Double Tax Avoidance Agreement (DTAA) between India and the United Kingdom helps Indian non-residents who live in the United Kingdom avoid paying taxes twice on the same income. Apart from the UK, India has also signed the DTAA with 84 other countries, where Non-Resident Indians are eligible for either tax relief or foreign tax credit.
DTAA between India and the UK was introduced back on 26th October 1993 when both parties agreed to abide by the articles included in the agreement. With this agreement, both India and the United Kingdom are responsible to avoid double taxation on income earned by residents of these countries in India or the UK.
This DTAA applies to the tax residents of India and the UK (together referred to as the Contracting States). Without this agreement, they will have to pay taxes twice on the same income, once in India and then in the UK.
Anyone living in the UK for at least 182 days in a fiscal year is eligible for tax exemptions under India UK DTAA. This particular agreement has 31 articles and a few subsections under them which explain the rules and regulations of tax benefits that a tax resident of either of the countries can claim.
DTAA between India and the UK is significant to both countries for numerous reasons. Some of them are:
DTAA applies to various types of taxes in both countries. There are two categories of taxes including ‘United Kingdom Tax’ and ‘Indian Tax.’
Taxes in the ‘United Kingdom Tax’ under DTAA are:
Taxes that fall under ‘Indian Tax’ category are:
Apart from these, other taxes, either the same or similar to these kinds of taxes, are included within the DTAA.
Taxpayers can get relief on the TDS or Tax Deducted at source under DTAA.
So if you are an Indian tax resident the maximum TDS that can be deducted in the UK on Interest income in UK is 15% and you will be eligible for credit of foreign tax in India as per the provisions of DTAA read with Section 90A.
Capital gains are also taxed under India UK DTAA as per Article 14 of the agreement, capital gains arising in any of the contracting states can be taxed in accordance with the domestic laws of that country unless they are under the categories mentioned under Articles 8 and 9. Hence, there is no restriction on maximum capital gains tax payable in the contracting state in which it arises, however, the said tax will be creditable in accordance with the domestic laws of the countries.
So if you are an Indian tax resident and you earn gains by selling shares in the UK, the said gain will be taxable in UK as per the domestic tax laws of the UK and you will be eligible for credit of foreign tax in India.
Articles 8 and 9 mention capital gains earned through air transportation and shipping-related contractual incomes which are only acceptable for tax relief under UK India DTAA.
UK India Double Taxation Avoidance Agreement (DTAA) is an important financial tool to establish a fair taxation system for both countries. It has many benefits for the taxpayers. Anyone who is earning in foreign currencies should know about the tax benefits under DTAA to claim benefits and relief offered.
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