DTAA Between India and the UK: A Key Tax Shield for NRIs and Businesses

 

In an increasingly globalised world, income often flows across borders. For Indians working, living, or investing in the UK, taxation becomes a complex area—especially when the same income is taxable in both countries. Fortunately, the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom helps reduce this burden.

This blog explores how the dtaa between india and uk protects taxpayers, how it works, and what NRIs and international businesses need to know.

🌐 What is the DTAA?

The Double Taxation Avoidance Agreement is a bilateral treaty designed to prevent the same income from being taxed in both countries. It provides tax relief mechanisms, allocates taxing rights between India and the UK, and promotes economic cooperation.

India and the UK first signed the DTAA in 1993, with periodic amendments to keep up with evolving tax laws and global standards, including OECD guidelines.

💼 Who Benefits from the India-UK DTAA?

• NRIs living in the UK but earning income from India

• UK residents with property or business operations in India

• Indian residents working temporarily in the UK

• UK companies doing business in India

Whether it's rental income, interest, dividends, or salary—this agreement determines how and where you are taxed.⚖️ Key Provisions of the India-UK DTAA

Type of Income	Taxing Rights & Conditions
Salary Income	Taxed where the work is performed (exceptions apply for short-term visits)
Dividends	Taxable in both countries; capped at 10–15% in source country
Interest Income	Taxable in both, but Indian tax capped at 15% for UK residents
Royalties & Fees	Taxed in source country, capped at 10% under DTAA
Capital Gains (Property)	Usually taxed in the country where the property is situated
Business Profits	Taxable only if there’s a permanent establishment in the other country
Pensions & Annuities	Taxed in the country of residence (in most cases)

These provisions aim to balance tax liabilities between the countries while avoiding duplication.

🧾 How to Claim DTAA Benefits

If you're a UK resident earning income in India, you need to:

1. Obtain a Tax Residency Certificate (TRC) from UK tax authorities (HMRC).

2. Submit Form 10F and a self-declaration to the Indian income payer.

3. Mention your Indian PAN while receiving the income to avoid higher TDS rates.

4. Keep documentary proof of taxes paid in India to claim foreign tax credit in the UK.

🔍 Example: If you earn ₹5 lakhs in interest income in India, the normal TDS is 30%. But under DTAA, you can limit this to 15%, saving ₹75,000 in upfront tax—simply by submitting the required documents.

📉 Tax Credit Mechanism

The DTAA between India and the UK generally follows the tax credit method, where income is taxed in both countries but the country of residence allows credit for taxes paid abroad.

So, if you paid tax in India, you can reduce your UK tax bill by the same amount, subject to UK tax laws.

🏠 Real Estate Income for UK NRIs

Let’s say you are a UK NRI earning rent or capital gains from a property in India:

• India will tax the income first.

• You may also need to declare it in the UK, depending on your UK residency status.

• You can claim relief under DTAA by offsetting Indian taxes against UK tax dues.

For property sales, TDS in India may be high, but with DTAA and proper tax filing, you can reclaim any excess tax or adjust it in the UK return.

🌍 DTAA for Indian Businesses in the UK

Indian companies doing business in the UK also benefit from the agreement:

• Reduced withholding tax on interest or royalty payments

• Avoidance of double taxation on branch profits

• Clear rules on Permanent Establishment (PE) to avoid surprise tax liabilities

This helps in better cross-border tax planning and improves investment efficiency.

🛑 Common Mistakes to Avoid

• Not applying for TRC before receiving income

• Failing to file Indian tax returns after receiving income

• Missing out on DTAA benefits due to lack of documentation

• Claiming relief without understanding the tie-breaker rules for dual residency

Professional assistance ensures you don’t lose out on available DTAA protections.

✅ Final Thoughts

The India–UK DTAA acts as a financial safeguard for those dealing with cross-border income. For NRIs, freelancers, real estate investors, and companies, this treaty reduces tax burdens, prevents legal issues, and ensures smooth financial operations between the two nations.

Whether you're planning to remit funds, sell property, or receive dividends from Indian investments, it’s wise to understand how the DTAA works and use it to your advantage.

To simplify DTAA compliance, document filing, and tax planning, get in touch with Dinesh Aarjav & Associates—your trusted partner for expert DTAA and NRI taxation services.