Double taxation is a major concern for individuals and businesses operating across multiple countries. It refers to the situation where the same income is taxed twice – once in the country where it is earned and again in the country where the earner is a resident. To avoid this, many countries have double taxation agreements (DTAs) in place. These agreements specify how income will be taxed, who will pay the tax, and how much.
If you are an individual or business operating in India and the UK or planning to do so, you may be wondering whether there is a DTA in place between the two countries. The good news is that India does have a DTA with the UK.
The DTA between India and the UK was first signed in 1993 and has since been updated several times. The latest update was signed in 2017 and came into effect from 1 January 2018. The agreement covers various aspects of taxation, including income tax, capital gains tax, and corporate tax.
Under the agreement, individuals and companies operating in either India or the UK are not subject to double taxation. This means that if you are an Indian resident earning income in the UK, you will not have to pay tax on that income in both countries. Similarly, if you are a UK resident earning income in India, you will not be taxed twice on that income.
The DTA also provides for reduced tax rates in certain situations. For example, if you are a UK resident receiving dividends from an Indian company, the maximum tax rate in India will be reduced from 15% to 10%. Similarly, if you are an Indian resident receiving royalties from a UK company, the maximum tax rate in the UK will be reduced from 20% to 10%.
It is worth noting that the DTA does not cover all types of taxes. For example, it does not cover value-added tax (VAT) or customs duties. These taxes are governed by separate agreements and regulations.
In conclusion, if you are operating or planning to operate in both India and the UK, you can take comfort in knowing that there is a DTA in place that prevents double taxation. This agreement provides clarity and certainty on how income will be taxed, which can help you make informed decisions and manage your tax liabilities effectively.