ISA Taxation in India: What Indian Residents and NRIs Must Know About UK ISAs
Investing in global markets has become more accessible than ever, and UK-based Individual Savings Accounts (ISAs) are among the most attractive investment options for UK residents. These accounts offer tax-free returns under UK law. But what happens when the account holder becomes a resident of India, either by returning to India or being classified as a tax resident under Indian law?
This blog breaks down the ISA Taxation India, especially for NRIs (Non-Resident Indians) who have returned to India or maintain UK investments.
An Individual Savings Account (ISA) is a UK-specific financial product that allows tax-free savings or investments up to a set annual limit (currently £20,000 for the 2025–26 tax year). The four main types of ISAs include:
Cash ISA – Tax-free interest on savings.
Stocks and Shares ISA – Tax-free returns from equity or bond investments.
Innovative Finance ISA – Peer-to-peer lending investments.
Lifetime ISA – For first-time home purchases or retirement savings.
Under UK law, returns earned through ISAs—whether interest, dividends, or capital gains—are completely tax-free.
No.
India does not recognise the tax-free status of ISAs. While ISAs are exempt from UK taxation, the Indian tax system treats them like any other foreign income or capital gains.
If you are a tax resident in India and earn returns from ISAs (opened while you were in the UK), those returns may be taxable in India, depending on the nature of the income and the structure of your ISA.
Here is a breakdown of how ISA income is likely to be taxed under Indian tax laws:
Treated as Income from Other Sources.
Taxable at your applicable income tax slab rate.
Taxable under the head ‘Income from Other Sources’.
Subject to slab rates.
No exemption, even if the dividend is tax-free in the UK.
Taxed according to Indian capital gains tax rules:
Listed shares (if held for over 1 year): Long-term capital gains (LTCG) taxed at 10% (above ₹1 lakh exemption).
Unlisted foreign shares or mutual funds: LTCG taxed at 20% with indexation after 24 months.
Short-term capital gains: Taxed as per slab or 15%, depending on asset type.
India and the UK have a Double Taxation Avoidance Agreement (DTAA). However, the DTAA does not provide an exemption for ISA income in India, simply because ISAs are a UK-specific tax shelter not recognised by Indian tax law.
So, even if you don’t pay tax in the UK on ISA returns, India will still expect you to report and pay tax on this income once you’re an Indian tax resident.
You may be subject to ISA taxation in India if you fall into one of the following categories:
You previously lived in the UK and held ISAs, but you’ve returned to India permanently or are now classified as a resident for tax purposes.
You inherited a UK ISA account from a relative and are now receiving income or returns from it.
You maintain your ISA account while managing investments across borders. Even if you no longer contribute to it (as per UK rules), the growth is subject to Indian tax laws.
As a resident Indian:
All global income must be reported in your Indian Income Tax Return (ITR).
ISA income should be disclosed under the relevant heads:
Interest: Income from Other Sources
Dividends: Income from Other Sources
Capital Gains: Long-term or Short-term Gains
Notify Your ISA Provider
Inform your provider of your change in tax residency status. While you can’t contribute further, you may retain your ISA.
Maintain Investment Records
Keep statements of ISA interest, capital gains, and dividends for tax filing purposes.
UK ISAs offer excellent tax benefits—but only while you’re a UK tax resident. Once you become an Indian resident, the Indian tax system no longer honours the exemptions you enjoyed in the UK. It’s essential for returning NRIs and global investors to understand how ISA taxation works in India to avoid non-compliance, misreporting, and unnecessary tax liabilities.
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