UK

Non-Resident Indians (NRIs) residing in the UK who invest in India must comply with tax regulations in both countries. The UK follows a worldwide taxation model for residents and a territorial tax model for non-residents. However, the Double Taxation Avoidance Agreement (DTAA) between India and the UK helps NRIs avoid paying tax twice on the same income.

Key Taxation Rules for NRIs in the UK

India-Sourced Income Taxation

NRIs are taxed in India on income earned within India.
This income must also be declared in the UK if they qualify as tax residents.
DTAA provisions allow tax credits for Indian tax paid.

Tax Residency in the UK

If an individual spends 183 days or more in the UK in a tax year, they are considered a UK tax resident.
UK residents are taxed on their worldwide income, including investments in India.
Non-residents are only taxed on UK-based income.

UK Income Tax Slabs (2024-25)

Up to £12,570 – Tax-free (Personal Allowance)
£12,571 - £50,270 – 20%
£50,271 - £125,140 – 40%
Above £125,140 – 45%

DTAA Between India and the UK

The India-UK DTAA ensures that NRIs do not pay tax twice on the same income. The methods used include:

Tax Credit Method

UK residents can claim a credit for taxes paid in India.

Exemption Method

Some income may be exempt from tax in one country.

Investment-Specific Taxation

1. Mutual Funds

Equity Mutual Funds: LTCG (>1 year) taxed at 10% in India, subject to UK taxation as well.
Debt Mutual Funds: LTCG (>3 years) taxed at 20% in India.
Capital gains from Indian mutual funds must be reported in the UK.

2. Fixed Deposits

NRE FDs: Interest is tax-free in India but taxable in the UK.
NRO FDs: Interest is taxable in both countries, eligible for DTAA credit.

3. Real Estate

Sale of Property: 20% LTCG tax in India.
Rental Income: 30% TDS deducted in India, taxable in the UK as well.

Common Tax Compliance Mistakes by NRIs in the UK

Not Declaring Indian Income in the UK – Leads to penalties under UK tax laws.
Ignoring DTAA Benefits – Can result in double taxation.
Incorrect Filing of Remittances – Misreporting foreign remittances can lead to compliance issues.

Conclusion

Understanding taxation for NRIs in the UK is crucial to ensure compliance and minimize liabilities. Seeking professional tax advice and leveraging DTAA provisions can optimize tax planning and investment returns.

Get in Touch Today to explore the best plans tailored to your needs!

+91 1234567890