DTAA Between India and the UK: A Smart Strategy to Avoid Double Taxation
In an increasingly global world, many Indians live, work, or invest in the United Kingdom, and vice versa. This global mobility creates opportunities—but also brings complex tax obligations. One key tool that simplifies cross-border taxation is the Double Taxation Avoidance Agreement (DTAA).
The dtaa between india and uk is a vital treaty that prevents individuals and businesses from paying taxes on the same income in both countries. This blog explains how the DTAA works, who benefits, and how to claim its advantages.
Double taxation occurs when a person earns income in one country and is taxed again on that income in their home country. The DTAA between India and the UK, signed and updated to reflect changing tax norms, ensures that such taxpayers don’t lose money to overlapping tax systems.
This treaty not only prevents financial loss but also promotes smoother trade, investment, and professional collaboration between the two nations.
The agreement benefits a wide range of people and entities, including:
NRIs based in the UK who earn income in India
Indian professionals working in the UK temporarily
Businesses with operations or clients across both countries
Investors with cross-border dividends, capital gains, or interest income
Let’s break down how different categories of income are treated under the treaty:
If a UK resident works in India for less than 183 days in a year and is paid by a UK employer with no Indian office, the salary is taxed only in the UK. Longer stays or Indian employers may result in Indian taxation as well.
Interest earned by a UK resident from an Indian source (like bank deposits or bonds) is taxable in India, but the rate is capped at 15%, as per DTAA provisions.
Dividends paid by an Indian company to a UK resident are taxable in India at a maximum of 10%, as per the treaty. This is lower than regular Indian tax rates and can help investors retain more earnings.
The DTAA allows:
Capital gains on immovable property to be taxed in the country where the property is located.
Capital gains on shares or securities to be taxed based on specific DTAA terms and local tax laws.
For instance, gains from listed shares held for over a year in India may be exempt or taxed at a reduced rate.
Royalties or technical fees paid by Indian companies to UK entities (or vice versa) are taxed at a reduced rate of 10%, provided the conditions in the DTAA are met.
If a UK-based business earns income from India without a permanent establishment (PE) in India, that income is not taxed in India. But if there is a PE, then India has the right to tax only the income attributable to that establishment.
Claiming DTAA relief involves the following steps:
Get a Tax Residency Certificate (TRC) from your home country (India or the UK).
Fill Form 10F, especially for those claiming lower TDS (Tax Deducted at Source) in India.
Submit a Self-Declaration stating eligibility for DTAA benefits.
Maintain supporting documents like proof of income, invoices, and contracts.
Indian payers must be informed in advance to apply the lower TDS rate while making payments.
Consider Mr. Sharma, an Indian citizen working in London. He owns a property in India that earns him rental income. According to Indian tax law, this income is taxable in India.
However, under the DTAA:
Mr. Sharma pays tax on that rental income in India (with appropriate TDS).
When filing taxes in the UK, he can claim a credit for the Indian tax paid, thus avoiding being taxed twice.
This benefit is not automatic. Mr. Sharma must ensure that he provides documentation and files the proper forms in both countries.
The DTAA between India and the UK is not just a tax relief mechanism—it’s a strategic tool for managing international income efficiently. Whether you’re an NRI investing in Indian real estate or a British business dealing with Indian clients, understanding this treaty can significantly reduce your tax burden.
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