Tax Treatment for a UK Citizen Having Income in India
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By D K Tax Consultant l Vadodara
1. Introduction
Many UK citizens of Indian origin continue to maintain investments and assets in India—ranging from fixed deposits and immovable property to mutual funds and equity holdings. As a result, a common question arises: How will these Indian incomes be taxed in India and how will the same be treated in the UK? Since the UK follows global taxation for its tax residents, while India follows source‑based taxation, it becomes crucial to understand each country’s rules and the interaction through the India–UK DTAA. This article explains the complete tax treatment in a clear, practical and compliant manner.
2. Residential Status – The Core Determinant
Under Indian tax law, a UK citizen becomes a Non‑Resident (NR) if they do not meet the residency criteria laid down under Section 6 of the Income‑tax Act. India taxes only the income which arises, accrues or is received in India for such NR individuals. In contrast, once a person qualifies as a UK tax resident under the Statutory Residence Test (SRT), HMRC taxes their worldwide income, including income earned in India. This dual framework often results in the possibility of double taxation, making DTAA provisions essential.
3. Interest Income from Indian Investments
When a UK resident earns interest from Indian fixed deposits, NRO accounts, or debt instruments, the income becomes taxable in India because the source of the income is in India. India levies TDS at 30% plus surcharge and cess for NRIs on most interest incomes, except NRE and FCNR deposits which remain exempt. The same income must also be reported in the UK, where it is taxed as part of total foreign interest income. HMRC then allows Foreign Tax Credit (FTC) to the extent permitted under the DTAA.
Interest Taxation Table – India vs UK
Type of Interest | Taxability in India | TDS in India | Taxability in UK | DTAA Article | Max Tax Allowed under DTAA |
NRO FD Interest | Taxable | 30% | Taxable | Article 12 | 15% |
NRE FD Interest | Exempt | Nil | Taxable | Article 12 | 0% |
FCNR Interest | Exempt | Nil | Taxable | Article 12 | 0% |
Bond/Debt Interest | Taxable | 20%/30% | Taxable | Article 12 | 15% |
4. Capital Gains from Sale of Assets in India
Capital gains arising from the sale of property, shares, or other capital assets situated in India are fully taxable in India, irrespective of the individual’s citizenship. India applies standard STCG and LTCG rules, including indexation benefits for long‑term assets (where applicable). When the taxpayer is a UK resident, these gains must again be reported under UK Capital Gains Tax (CGT). However, UK rules allow a credit for taxes paid in India, ensuring that the income is not taxed twice beyond the higher tax rate applicable.
Capital Gains Comparison Table
Asset Sold in India | Tax in India | TDS Rate | UK Treatment | DTAA Article |
Immovable Property | Taxable (STCG/LTCG) | 30%/20% | Taxable | Article 13 |
Equity Shares (Listed) | STCG 15% / LTCG 10% | 15%/10% | Taxable | Article 13 |
Mutual Funds | STCG/LTCG as per type | 15%/10% | Taxable | Article 13 |
5. Rental Income from Indian Property
Rental income from property located in India is always taxable in India since the income arises from an immovable asset situated in India. After deductions for municipal taxes and a standard 30% deduction for repairs, the final taxable amount is subject to slab rates. In the UK, rental income from foreign property must also be reported. The UK may permit certain deductions as per its own rules, and Foreign Tax Credit is available against tax paid in India.
6. Dividend Income from Indian Companies
Dividends declared by Indian companies and received by a UK resident are taxable in India under Section 195 with TDS generally applied at 20%. The same dividends are again taxable in the UK as part of global dividend income. Under the DTAA, India’s right to tax such dividend income is capped at 15%, meaning that where India deducts higher tax, UK credit is limited to the DTAA‑allowed rate.
Dividend Income Snapshot
Particular | India | UK | DTAA | Notes |
Dividend from Indian Company | Taxable @ slab | Taxable | Article 10 | FTC available up to 15% |
7. DTAA – Eliminating Double Taxation
The India–UK DTAA ensures that income is not taxed twice economically. Under Article 23, the UK allows Foreign Tax Credit for taxes paid in India, restricted to the lower of: (a) actual tax paid in India, or (b) the UK tax payable on the same income. This mechanism is particularly relevant in cases where India deducts TDS at rates above the DTAA limit (e.g., 30% on interest). While India does not refund excess TDS automatically, the taxpayer may file an Indian return to claim the balance refund.
8. Practical Scenarios Explained
Scenario: High Indian TDS vs Lower DTAA Rate
If a UK resident earns ₹5 lakh interest on an NRO deposit and India deducts TDS @ 30%, UK will allow credit only up to 15%. The remaining 15% becomes an unclaimed tax unless the taxpayer files a refund claim in India.
Scenario: Sale of Property
A UK resident selling property in India and earning ₹20 lakh LTCG will face tax and TDS in India. UK will again compute CGT but allow credit for Indian tax paid. If UK tax is lower than the Indian tax, no further tax arises in the UK.
9. Compliance Requirements
Indian Compliance
UK Compliance
10. Key Legal References
Indian References: Sections 5, 6, 90, 195 and Rule 128.
UK References: HMRC Foreign Income Manual, SRT Guidance, SA106.
DTAA Articles: 6 (Property), 10 (Dividend), 12 (Interest), 13 (Capital Gains), 23 (FTC Mechanism).
Conclusion
For UK residents holding Indian assets, understanding the dual taxation model is essential for proper tax planning. India taxes income based on its source, while the UK taxes income based on residency. The DTAA bridges this gap by eliminating double taxation. With correct documentation, strategic planning, and timely returns in both jurisdictions, taxpayers can significantly optimise their tax outcomes while staying fully compliant.
This article is prepared based on the prevailing provisions of the Indian Income-tax Act, UK HMRC regulations, and the India–UK Double Taxation Avoidance Agreement (DTAA), interpreted in a practical manner for taxpayers of Indian origin residing in the United Kingdom. Readers are advised that tax laws may change from time to time, and individual tax implications can vary depending on residency, asset composition, and personal circumstances. For personalised tax planning, cross-border compliance assistance, or NRI taxation advisory, please feel free to reach out.
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