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India-United Kingdom Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the United Kingdom of Great Britain and Northern Ireland (UK) was initially signed on January 25, 1993. The DTAA has undergone revisions twice, first through a protocol signed on October 30, 2012, and later through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) signed on June 7, 2017. The agreement serves to prevent double taxation and fiscal evasion concerning taxes on income and capital gains.

Applicability of the DTAA

The DTAA applies to the following taxes in the contracting states:

In India:

  • Income tax, including any surcharge thereon.

In the UK:

  • Income tax
  • Corporation tax
  • Capital gains tax
  • Petroleum revenue tax

Key Takeaways of the Agreement

  1. Extension of Application: The DTAA’s application extends to all similar or substantially similar taxes imposed by either of the contracting states after the date of the DTAA’s signature, in addition to the taxes of the other contracting state.
  2. Withholding Tax on Dividends: The rate of withholding tax on dividends is 10% if the beneficial owner is a UK company owning at least 25% of the shares of the Indian company paying the dividends; otherwise, it is 15%.
  3. Tax Exemptions:
    • Students residing in either of the contracting countries for the purpose of education are exempt from tax.
    • Individuals visiting either of the contracting nations for up to 2 years for teaching or research purposes at a university or college are exempt from taxes, with this benefit limited to 5 years.
  4. Residential Status: A person liable to taxation based on domicile, residence, place of management, or similar criteria is considered a resident. Specific criteria are laid down for determining residential status.
  5. Tax Credit for Partnerships: A partnership where the partner is a resident of India is liable to a tax credit for dividends paid to the partnership by a UK-resident company.
  6. Exemption for Governmental Functions: Remuneration, excluding pensions, paid by the government of a state to any individual who is a national of that state for services provided in the discharge of governmental functions in the other state is exempt from tax in the other contracting state.

Significance

The DTAA has been successful in stimulating the flow of investment, technology, and services between India and the UK. It includes provisions for the effective exchange of information between tax authorities of the two countries, aligning with the latest international standards. The DTAA facilitates the sharing of information and provides assistance by the states in the collection of taxes. The amending protocol enhances the agreement, bringing it in line with contemporary international tax norms, including the exchange of banking information and supplying information irrespective of domestic interest.

To know more about DTAA relations between India and United Kingdom, please download our Guide.

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