Double Tax Avoidance Agreement (DTAA) Between India and UK

The DTAA between India and the UK prevents citizens of both countries, including NRIs, from being taxed twice on the same income, with tax paid in one country claimed as a credit in the other. There are 31 Articles, including income tax, corporate tax, and capital gains, capping TDS at 15% on dividends, interest, royalties, and technical fees derived from immovable property and 10% on other dividend income. 

Any individual who is residing for at least 183 days in a fiscal year can claim these tax benefits. However, even non-residents can also claim DTAA benefits and need not satisfy the 183-day criteria to claim these benefits. This  makes the DTAA a key tool for Indian professionals and NRIs

What is DTAA between India and the UK?

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. 

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. 

Taxes Covered Under DTAA

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:

• Income tax
• Corporate taxes
• Taxes on capital gains
• Taxes on petroleum revenue

Taxes that fall under ‘Indian Tax’ category are:

• Income tax along with cess and any/all surcharges

Apart from these, other taxes, either the same or similar to these kinds of taxes, are included within the DTAA.

Taxation of Dividends under DTAA

Dividend recipients enjoy the reduced rate of tax on receipt of dividends from the company situated in UK under India-UK DTAA treaty, the reduced tax rate also helps in deduction of reduced TDS deduction upon proving the residency.

• In case of the UK, Article 11 of the DTAA says that the Tax rate on dividend income cannot exceed 15% if the gains are derived directly or indirectly from immovable property. This 15% rate applies to interest, royalty and technical fees as well.
• In all other cases of dividend income, rate of TDS is 10%. 
• According to the India UK DTAA, anyone can avail benefit of 15% rate on the dividend income. 
• At the same time, a tax credit of up to 15% is also possible according to Article 12(2). 

So if you are an Indian tax resident the maximum TDS that can be deducted in the UK on Interest income in the UK is 15% provided you prove that you are a tax resident of India and you will be eligible for credit of foreign tax in India as per the provisions of DTAA read with Section 90A.

Click here to know more the tax residency certificate and how to obtain it

Taxation on Capital Gains under DTAA

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.

Taxation on Personal or Professional services under DTAA

Professional income are also taxed under India UK DTAA as per Article 15 of the agreement, income arising in any of the contracting states can be taxed in accordance with the domestic laws of that country only if he is present for a period of more than 90 days or has a fixed base for the purpose of performing his activities. Again  you will be eligible for credit of foreign tax in India.

Final Word

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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