Q643. Explanation of Double Tax Avoidance Agreements by example . . .
Question: Hello Mr. Chand,
I am an Indian citizen working in the UK with a Permanent Resident Visa. (ILR)
I have an NRE saving bank and NRE deposits in India. The bank has explained that the interest from these accounts is not taxed in
India.
However, do I still have to pay tax on the interest in UK? Or will the double taxation treaty between UK and India mean I do not
pay taxes anywhere?
Thanks and Kind Regards,
Rahul.
Answer: Unfortunately, what you imply is not true! While your bank is right in saying there is no tax on NRE bank account deposits in India, your interest income on these accounts, or for that matter any other type of bank account, is taxable in UK. Such income must be declared when you file your UK taxes.Simple explanation by example of how double tax treaties work
Simply put, a double tax avoidance treaty is a mutual agreement between two countries so that their citizens can avoid paying tax on the same income in two countries. Generally, each country allows their residents to claim a credit for taxes paid on the same income to the other country. The easiest way to explain this is by example: • Suppose a UK resident Mr. A, has income in India. Suppose the tax rate that applies to Mr. A on this income is 5% and Mr. A pays 5% tax in India. • Since worldwide income is subject to tax in UK. When Mr. A files taxes in UK, he must include the Indian income. This income will also be taxable in UK, but Mr. A will get credit for the taxes already paid in India. • Suppose the UK tax rate for Mr. A works out to be 8%. o Mr. A can then claim the 5% tax already paid in India and will have to pay only 3% tax on the Indian income in UK. He gets this credit due to the double tax avoidance treaty.NRE Bank Accounts and Double Tax Avoidance Agreement (DTAA)
• Suppose, as in the case of NRE bank accounts, The Indian government, exempts such income from taxation. However, this income would still be taxable in UK. Since no tax has been paid on this income in India. Mr. A in such a case, would have to pay the full 8% tax in UK.
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accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has been
stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail.
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Q643. Explanation of Double Tax
Avoidance Agreements by example
Question: Hello Mr. Chand, I am an Indian citizen working in the UK with a Permanent Resident Visa. (ILR) I have an NRE saving bank and NRE deposits in India. The bank has explained that the interest from these accounts is not taxed in India. However, do I still have to pay tax on the interest in UK? Or will the double taxation treaty between UK and India mean I do not pay taxes anywhere? Thanks and Kind Regards, Rahul. Answer: Unfortunately, what you imply is not true! While your bank is right in saying there is no tax on NRE bank account deposits in India, your interest income on these accounts, or for that matter any other type of bank account, is taxable in UK. Such income must be declared when you file your UK taxes.Simple explanation by example of how double tax
treaties work
Simply put, a double tax avoidance treaty is a mutual agreement between two countries so that their citizens can avoid paying tax on the same income in two countries. Generally, each country allows their residents to claim a credit for taxes paid on the same income to the other country. The easiest way to explain this is by example: • Suppose a UK resident Mr. A, has income in India. Suppose the tax rate that applies to Mr. A on this income is 5% and Mr. A pays 5% tax in India. • Since worldwide income is subject to tax in UK. When Mr. A files taxes in UK, he must include the Indian income. This income will also be taxable in UK, but Mr. A will get credit for the taxes already paid in India. • Suppose the UK tax rate for Mr. A works out to be 8%. o Mr. A can then claim the 5% tax already paid in India and will have to pay only 3% tax on the Indian income in UK. He gets this credit due to the double tax avoidance treaty.NRE Bank Accounts and Double Tax Avoidance Agreement
(DTAA)
• Suppose, as in the case of NRE bank accounts, The Indian government, exempts such income from taxation. However, this income would still be taxable in UK. Since no tax has been paid on this income in India. Mr. A in such a case, would have to pay the full 8% tax in UK.
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educating and connecting Indians across the globe
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