Understanding DTAA Between India and UK

The DTAA (Double Taxation Avoidance Agreement) between India and the UK holds significant relevance in the contemporary world of global trade and taxation. Before this treaty, taxpayers faced the burden of double taxation on their income, hampering economic exchanges between the two nations. However, the India-UK tax treaty has helped eliminate such taxation hurdles and promoted cross-border investments. Given the importance of this agreement, it is important to understand it to maximize its benefits. This article sheds light on the importance, scope, and rates of the DTAA between India and the UK.

Contents

• What is DTAA Between India and UK?
• What is the Importance of India-UK DTAA?
• What are the Taxes Covered Under DTAA?
• What is the Scope of DTAA Between India and UK?
• What are the India-UK DTAA TDS Rates?
• What is the Taxation on Capital Gains Under DTAA?
• FAQs

What is DTAA Between India and UK?

DTAA between India and the UK was first signed and introduced on 26 October 1993. It is a written agreement signed between both countries that lays out the rules, regulations, and provisions of taxation between the contracting countries. This agreement helps avoid double taxation on the income earned from these countries.

This agreement helps the Non-resident Indians who live in the UK and earn in UK currency as it helps them avoid paying taxes twice on the same income. Anyone who lives in the UK for at least 182 days in a year is called an NRI and is eligible for tax benefits under the India UK DTAA. The India-UK tax treaty consists of 28 articles and some subsections consisting of the provisions for claiming tax benefits.

What is the Importance of India-UK DTAA?

India-UK DTAA holds great significance for both countries due to the following reasons -

• It incorporates fairness in the taxation system. It makes sure that every taxpayer earning internationally has to pay tax only once in any of the contracting countries, depending on the provisions.
• This agreement allows tax benefits such as relief on tax deducted at source, tax credit in one of the countries, and tax exemptions.
• Making the tax system just and fair for NRI taxpayers also helps avoid evasion of taxes and better compliance with the rules and regulations.
• It increases employment opportunities in both countries as it promotes multinational job opportunities in India, thereby increasing their earnings and providing them an opportunity to participate in the global business environment.

What are the Taxes Covered Under DTAA?

DTAA between India and the UK can apply to different types of taxes. Given below are the taxes covered under India UK DTAA -

United Kingdom Tax

• Income tax
• Corporate taxes
• Capital Gains Tax
• Petroleum Revenue Tax

India Income Tax

• Income tax, along with all other surcharges,
• Other types of taxes of similar nature

What is the Scope of DTAA Between India and UK?

• Residence-Based Taxation: The DTAA provides the rules and regulations on the basis of which the residents and non-residents are taxed. It makes sure that individuals and businesses do not have to pay tax twice on the same income.
• Business Profits: This agreement consists of the guidelines for the taxation of business profits earned by different companies in any of the countries.
• Capital Gains: This agreement consists of the provisions for capital gains arising from the sale of shares, assets, real estate, and other investments. Want to identify tax-saving options for capital gains? Get Tax Advisory Services Now!
• Exchange of Information: It consists of the rules for the exchange of information between both the countries and tax authorities to prevent tax evasion and ensure compliance.
• Dividends, Interest, and Royalties: DTAA lays out the rules and regulations for the taxation of the interest, royalties, and dividends received by the residents of any of the contracting countries. It makes sure that such income is charged to tax at reasonable rates and does not get taxed twice.

What are the India-UK DTAA TDS Rates?

Under DTAA, the taxpayers can get relief on Tax Deducted at the Source of TDS paid. However, the TDS rates vary depending on the type of income. Given below are a few India-UK DTAA TDS rates -

• Article 11 of the DTAA between India and the UK states that the rate of TDS on the dividend income should not exceed 15% if the income is earned directly or indirectly from an immovable property. DTAA between India and the UK for technical services and royalty is also taxed at 15%.
• The TDS rate is 10% for other cases of dividend income.
• Taxpayers are eligible to avail of a tax relief of upto 15% on their dividend income under the India-UK DTAA.
• Article 12(2) of the DTAA between India and the UK provides for a tax credit of upto 15%.
• Article 24 of the India-UK DTAA has a tax spared law. This law also allows the assessees to claim a credit of the tax that is not paid but restricted to 10 years from the date when it was first accrued.

What is the Taxation on Capital Gains Under DTAA?

In the India-UK DTAA, all capital gains have to be taxed as per the provisions of capital gain taxation in both countries unless it is mentioned in Articles 8 and 9.

These sections deal with the taxation of capital gains from air transportation and contractual income related to shipping. These incomes are eligible for tax relief under the DTAA between India and the UK.

In today's globalized world, understanding the DTAA between India and the UK is very important. This treaty not only prevents double taxation but also offers substantial tax benefits to taxpayers. However, to maximize the benefits of this agreement, it is important to understand its provisions, which can seem complex to laymen.

Given its complexity, seeking the guidance of a qualified Chartered Accountant (CA) can be a wise decision. By doing so, individuals and businesses can ensure they make the most of the India-UK tax treaty, ultimately saving taxes.

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Frequently Asked Questions

Q - Is income earned in India taxable in the UK?

Whether you are required to pay tax depends on your residential status in the relevant year. If you are not a resident of the UK, you will not have to pay UK tax on your foreign income. Similarly, if you are a UK resident, then you will have to pay tax in Indi on your foreign income, except in case your permanent home is located abroad.

Q - What are the documents required as per DTAA in India?

Following are the documents required as per the DTAA between India and the UK -

• Tax Residency Certificate (TRC)
• Form 10F
• NRI Self-declaration form
• Self-attested PAN card copy
• Self-attested copy of passport and PIO/Visa card

Q - What is DTAA between India and the UK for salary income?

The India-UK DTAA makes sure that taxpayers who are residents of one country are not subject to tax twice on the same income.