The India-UK Tax Treaty in Depth: What a UK-Resident NRI Actually Pays on Indian Income, and How the New FIG Regime Changes the First Four Years

A reader who moved from Bengaluru to Manchester in September 2024 sent me his first UK Self Assessment in a panic. HMRC wanted tax on the interest from his NRE fixed deposits, the same deposits an Indian bank had told him were "completely tax-free". He was right that they are tax-free in India. He was also about to be taxed on them in the UK at 40%, because nobody had told him that the moment he became UK resident, India's exemption stopped mattering and the UK's worldwide tax net took over. What saved him was something he had never heard of: a four-year regime, brand new from 6 April 2025, that could have made all of it disappear if he had claimed it in time.

The 30-second answer: The India-UK DTAA caps Indian tax on dividends paid to a UK resident at 10% (15% for property vehicles) and on interest at 15%, but gives no rate cap on capital gains, which India taxes under domestic law while the UK gives a credit. Private pensions and most salary are taxable only where you are resident; UK government pensions stay taxable in the UK. If you are resident in both countries, Article 4's tie-breaker (permanent home, then centre of vital interests, then habitual abode, then nationality) picks one. Crucially, the UK's new Foreign Income and Gains regime, live since 6 April 2025, lets a qualifying new arrival exempt all Indian income for their first four UK tax years, at the cost of the 12,570 pound personal allowance. The UK tax year runs 6 April to 5 April, India's 1 April to 31 March, and that one-week gap creates real apportionment work.

This guide is for the NRI who is tax-resident in the UK and still has income coming out of India: NRE and NRO deposits, dividends from Indian shares, rent from a flat, capital gains on mutual funds, maybe a pension building up. It assumes you already understand basic Indian residency and the NRE versus NRO distinction; if not, start with the residency and RNOR guide. What follows is the treaty read article by article, the tie-breaker when both countries claim you, how foreign tax credit works in each direction, and the single biggest change in a generation for new UK arrivals, the FIG regime that replaced non-dom status.

The treaty is a ceiling on India, not a discount you get automatically

The first thing to understand about the India-UK Double Taxation Avoidance Agreement, signed 25 January 1993 and in force since, is what it actually does. It does not exempt your Indian income from tax. It allocates taxing rights between the two countries and, for certain income types, caps the rate the source country (usually India) can charge. The UK then taxes you on your worldwide income as a resident and gives credit for the Indian tax, so you broadly pay the higher of the two rates rather than both stacked on top of each other.

The trap is that the treaty rate is not applied for you. India's domestic law taxes a non-resident's dividend at 20% plus surcharge and cess, and its NRO interest at 30%. The treaty says India may not charge more than 10% on the dividend or 15% on the interest. To get the lower number deducted at source, you have to prove you are entitled to the treaty by giving the Indian payer a Tax Residency Certificate (TRC) from HMRC and a Form 10F. Without those, the bank or company deducts the full domestic TDS and you spend a year clawing back the difference through an Indian return. The mechanics of TRC and Form 10F are covered in DTAA mechanics; the principle to carry into the rest of this guide is that every rate cap below is conditional on documentation in the payer's hands before the income is paid.

Interest: capped at 15% in India, fully taxable in the UK, and NRE is where people get hurt

Article 12 of the treaty lets India tax interest arising in India but caps the charge on a UK-resident beneficial owner at 15% of the gross amount (10% where the beneficial owner is a bank). That cap is the relief on NRO deposits, where India's domestic non-resident rate is a brutal 30% plus surcharge and cess. Hand the bank your TRC and Form 10F and the NRO TDS drops from roughly 31.2% to 15%.

NRE interest is the genuinely dangerous case, and it is the opposite of what the Indian bank told my Manchester reader. NRE interest is exempt from Indian tax under Section 10(4) of the Income Tax Act. That exemption is an Indian rule for non-residents. The instant you become UK tax resident, the UK taxes you on your worldwide income on the arising basis, meaning as it arises, regardless of whether you bring it to the UK. So NRE interest that paid zero in India is taxed in full in the UK at your marginal rate, 20%, 40% or 45%.

Put real numbers on it. Take Priya, resident in the UK and a higher-rate (40%) taxpayer, holding NRE fixed deposits paying Rs 8,00,000 of interest in the year, roughly 7,800 pounds at Rs 103 to the pound.

In India she pays nothing; NRE interest is exempt. In the UK that 7,800 pounds is foreign interest taxed at 40%, so about 3,120 pounds of UK tax. Because India deducted no tax, there is normally no foreign tax credit to set against it. The "tax-free" deposit is being taxed at 40% in her hands.

This is where you will see a debated point quoted online, so I will be honest about it. Article 24(4) and (5) of the India-UK treaty contains a tax-sparing provision: in some circumstances the UK gives a deemed credit for Indian tax that was reduced or not charged in order to promote development, and commentators argue this can hand a UK resident a credit of up to 15% on Indian interest even where no Indian tax was actually deducted. Two cautions. First, the relief is time-limited, broadly to the first ten years of the deposit or the arrangement, so it is not permanent. Second, whether HMRC accepts it specifically on exempt NRE interest, as opposed to interest that bore a spared Indian charge, is not settled, and the safe planning assumption is that you do not get it. Treat any tax-sparing credit on NRE interest as something to argue with proper advice, not a number to rely on in your return.

The practical conclusion for a long-settled UK resident: NRE deposits lose much of their appeal. The Indian exemption you were chasing is neutralised by UK tax, and you would often be better off in a UK or other instrument. The exception is the new arrival, and that is the FIG story below.

Dividends: 10% in India, then topped up to your UK rate

Article 11 caps Indian tax on dividends paid by an Indian company to a UK-resident beneficial owner at 10% in the ordinary case, rising to 15% for dividends from property-investment vehicles. India's domestic rate on a non-resident's dividend is 20% plus surcharge and cess, so the treaty halves the Indian bite, again only if your TRC and Form 10F are with the company or its registrar before the dividend is paid.

The UK then taxes the same dividend as foreign dividend income and gives credit for the 10% Indian tax. Because UK dividend rates for higher and additional-rate taxpayers (33.75% and 39.35%) exceed 10%, you pay the gap.

Here is what that does in practice. Suppose Priya receives Rs 5,00,000 of dividends from Indian shares, about 4,854 pounds, and is a higher-rate UK taxpayer.

India deducts treaty-rate TDS of 10%, Rs 50,000 (about 485 pounds). In the UK the gross dividend of 4,854 pounds is taxed at 33.75%, about 1,638 pounds, less the UK dividend allowance which is now small, and she claims credit for the 485 pounds of Indian tax. Net UK tax is roughly 1,638 minus 485 = 1,153 pounds, and her total tax across both countries is about 1,638 pounds, the UK figure. Had she failed to file Form 10F and suffered domestic Indian TDS of 20% plus surcharge and cess, around 1,040 pounds, she would still only credit up to the treaty-permitted 10% in the UK and would have to reclaim the excess Indian tax through an Indian return. The treaty does not let you credit Indian tax above what the treaty itself allows India to charge; over-deducted Indian tax is India's to refund, not the UK's to credit.

Capital gains: the treaty hands India a free hand, and the UK gives the credit

This surprises people who expect a treaty to cap everything. Article 14 on capital gains in the India-UK treaty does not give a rate ceiling the way the UAE treaty famously does for shares. It largely allocates the gain to the source country's domestic law. So India taxes a UK resident's gains on Indian shares, mutual funds and property under its own rules: listed equity and equity funds at 12.5% long-term above Rs 1.25 lakh and 20% short-term under Section 115AD, property at 12.5% with no indexation, and so on. The detail of those rates is in the capital gains guide; the treaty point is simply that the UK-India treaty does not rescue you from them.

The UK then taxes the same gain (if you are UK resident and not sheltering it under FIG) and gives a foreign tax credit for the Indian tax. UK capital gains tax on most assets is 18% (basic rate) or 24% (higher rate) after the 2024 changes, with a separate regime for residential property.

The gap is easiest to see on one mutual-fund sale. Take Arjun, UK resident and a higher-rate taxpayer, who realises a long-term gain of Rs 20,00,000 on Indian equity mutual funds, about 19,417 pounds.

In India the first Rs 1.25 lakh is exempt, leaving Rs 18,75,000 taxed at 12.5%, Rs 2,34,375 (about 2,276 pounds) plus cess. In the UK the full gain of 19,417 pounds (the UK does not recognise India's Rs 1.25 lakh exemption) is taxed at 24%, about 4,660 pounds, against which he credits the roughly 2,276 pounds of Indian tax, leaving about 2,384 pounds of UK CGT to pay. His total tax is the UK figure, around 4,660 pounds. The Indian exemption and lower Indian rate do not reduce his overall bill once UK tax is higher; they just shift where the money lands. The one thing he must get right is timing the credit, because the two tax years do not line up, which is the apportionment problem later in this guide.

Pensions and salary: residence usually wins, but a UK government pension does not move

Two articles matter for working and retiring NRIs. Article 16 (dependent personal services) says salary is taxable only in your country of residence unless the employment is physically exercised in the other country, in which case that other country may also tax the portion earned there. For a UK-resident NRI doing all the work in the UK, salary is a UK matter and India does not get a slice; the friction arises only if you spend chunks of the year working physically in India, where the days worked there can become Indian-taxable and need apportioning.

Article 20 (pensions) is the one retirees should read twice. A private or employer pension, or an annuity, paid to a resident of one country is taxable only in that country of residence. So a UK-resident NRI drawing a private Indian pension or annuity is taxed on it in the UK, not India, and an Indian-resident retiree drawing a UK private pension is taxed in India. But government-service pensions are different: a pension paid by the UK government for past UK government service generally stays taxable in the UK even if you have moved to India, and an Indian government pension generally stays taxable in India. The honest read here is that the boundary between "government service" and ordinary employment for pension purposes is fact-specific, and people who worked for state-owned entities or mixed bodies should get the classification checked rather than assume. For how this feeds a two-country retirement plan, see retirement planning across two countries.

When both countries call you resident: the Article 4 tie-breaker

Move to the UK part way through a year and you can easily be tax-resident in both countries at once: still resident in India under the day-count and the new deemed-residence rules, and already resident in the UK under the Statutory Residence Test. Both countries then claim your worldwide income. The treaty stops the madness through the Article 4 tie-breaker, a sequence of tests applied strictly in order, stopping at the first one that resolves it.

The first test is permanent home: the country where you have a home permanently available to you. If you have given up your Indian home and rented one in the UK, this often settles it in the UK's favour straight away. If you kept a home in both, the test moves on. The second is centre of vital interests, the country with which your personal and economic relations are closer, weighing family, where your job and active business are, where your property is administered, your social and cultural ties. Indian tribunals (the EY-reported Mumbai Tribunal decision in 2024 is a recent example) treat this as an intensely factual enquiry and give weight to the nucleus family and active income over passive Indian investments. The third test is habitual abode, broadly where you actually spend your time, and the fourth is nationality. If even nationality does not resolve it, the two tax authorities settle it by mutual agreement.

The practical upshot for most UK arrivals: once you have a settled UK home, a UK job and your spouse and children with you in the UK, the tie-breaker makes you UK-resident for treaty purposes even in a year India also counts you as resident. That matters because it determines which country has the primary right to tax, and which one must give the credit. Do not try to argue the tie-breaker in your head and act on it; the analysis and the documentation are in the dual-residency tie-breaker guide, and getting it wrong means filing as resident in the wrong country.

Foreign tax credit, both directions, and the forms each side wants

The treaty's elimination-of-double-taxation article (Article 24 in the India-UK numbering) uses the ordinary credit method in both directions: each country gives credit for the other's tax on the same income, capped at its own tax on that income. The credit is the lower of the foreign tax paid and the domestic tax attributable to that income; excess foreign tax is lost, not refunded.

The direction depends on who is the source country and who is the residence country for the income. For a UK-resident NRI with Indian-source income, the normal pattern is: India taxes at source (at the treaty rate where you claimed it), and the UK gives Foreign Tax Credit Relief on your Self Assessment for the Indian tax, capped at the UK tax on that income. You claim it on the foreign pages (SA106) of the UK return. To get treaty rates in India in the first place you needed the HMRC TRC and Form 10F in the payer's hands.

The reverse direction matters if you are still Indian tax-resident in a transition year, or you are an Indian resident with UK income. Then India gives the credit, and you claim it in the Indian ITR using Schedule TR and Form 67, supported by proof of the UK tax paid. Form 67 must be filed before the relevant due date; miss it and the credit can be denied. The full Form 67 procedure is in the foreign tax credit guide.

The number that trips people is the cap. If Indian tax on a gain is higher than UK tax on the same gain, you cannot get the difference back from the UK; the excess simply disappears. This is why timing realisations into the right residence year, and using the FIG regime where you can, beats relying on credits to mop up afterwards.

The FIG regime: four years where Indian income can vanish from UK tax

This is the biggest change for new arrivals in a generation, and it is why my Manchester reader's panic was, in fact, fixable. From 6 April 2025 the UK abolished the old domicile-based non-dom regime and the remittance basis, and replaced them with the Foreign Income and Gains (FIG) regime. A qualifying new resident pays no UK tax on eligible foreign income and gains for their first four UK tax years, whether or not they bring the money to the UK.

You qualify if it is one of your first four tax years of UK residence and you were not UK resident in any of the ten tax years before you arrived. Genuine returning NRIs who left the UK long ago, or first-time arrivals from India, typically meet this. For the transitional 2025/26 year the regime is open to people whose UK residence began as far back as 2022/23.

For an NRI this is sweeping. During those four years your Indian rental income, Indian dividends, Indian interest including NRE interest, and capital gains on Indian assets can all be exempted from UK tax if you claim FIG. The deposits the Indian bank promised were "tax-free" actually are tax-free in the UK too, for four years, because FIG removes them from the UK charge.

It is not free, and this is the part the headlines skip. For any tax year you claim FIG you lose your UK personal allowance (12,570 pounds of tax-free income) and your capital gains annual exempt amount. So your UK-source income, your UK salary, is taxed from the first pound that year. The claim only pays when the foreign income you are sheltering comfortably exceeds those lost allowances.

Here is the trade-off with numbers. Take Vikram, who moved to London in 2025 and in his first UK year has Rs 12,00,000 of NRE interest plus Indian dividends, about 11,650 pounds, and a UK salary of 70,000 pounds.

If he claims FIG, the 11,650 pounds of Indian income is exempt in the UK, saving roughly 40% of 11,650 = 4,660 pounds. But he loses his 12,570 pound personal allowance, and as a higher-rate taxpayer that allowance was worth about 40% of 12,570 = 5,028 pounds. On these numbers, claiming FIG actually costs him about 368 pounds, because the allowance he forfeits is worth slightly more than the foreign income he shelters.

Now the counterfactual that flips it. Suppose his Indian income were Rs 30,00,000, about 29,126 pounds. Claiming FIG would shelter that at 40%, worth 11,650 pounds, against the same 5,028 pound cost of the lost allowance, a net saving of about 6,622 pounds. The lesson is precise: FIG is worth claiming only when your relieved foreign income, taxed at your UK marginal rate, saves you more than the personal allowance is worth. Below roughly 12,570 pounds of foreign income for a higher-rate taxpayer, do not claim it. Run the maths each year, because your Indian income and your UK rate band both move.

You claim FIG on your UK Self Assessment return for the year, and the deadline for each claim is 31 January in the second year following the tax year. After the four years end, every pound of Indian income becomes fully UK-taxable on the arising basis, and you are back to the NRE-interest problem above. Plan the four-year cliff: it is often the moment to restructure Indian deposits, realise or rebase gains, and decide whether some Indian assets should be sold while still inside the window.

Two tax years that do not line up: the April-to-April apportionment

The UK tax year runs 6 April to 5 April. India's runs 1 April to 31 March. That one-week offset, plus the gap between the two starting points, is a genuine source of error when you claim foreign tax credit, because the income and the tax credited must be matched correctly across mismatched periods.

A concrete example: Indian dividend TDS deducted in, say, February 2026 falls in India's financial year 2025-26 (ending 31 March 2026) but in the UK tax year 2025-26 (ending 5 April 2026), so it usually lands in the same UK year, which is convenient. But Indian income arising in late March or early April straddles the boundary: income paid on 2 April is in UK year 2026-27 but Indian FY 2026-27 as well, while income on 30 March is Indian FY 2025-26 and UK year 2025-26. The friction is sharpest with Indian capital gains realised close to 5 April and with the timing of Indian tax payments: the UK gives credit for foreign tax by reference to the income in the UK year, and you need to evidence the Indian tax against the correct UK period, sometimes before the Indian return for that year is even filed.

The practical handling: keep your Indian tax records by date of the underlying income, not just by Indian financial year; for income arising near the April boundary, work out which UK tax year it falls in before assuming the Indian FY is the answer; and where Indian tax is paid or refunded after you file the UK return, remember the UK allows the credit to be revisited when the foreign tax is finally determined. For anything material near the year-end, the apportionment is worth a short conversation with an adviser who handles both returns, because a credit claimed in the wrong UK year can be denied and then time-barred.

The documentation, in the order you actually need it

The reliefs above are worthless without paper, and the paper has an order. To get treaty rates deducted in India, you need an HMRC Tax Residency Certificate (apply to HMRC; it confirms you are UK-resident for treaty purposes) and a Form 10F filed on the Indian income-tax portal, both given to the Indian payer before the income is paid. For NRO interest and dividends this is what turns 30% and 20% domestic TDS into 15% and 10% treaty rates. To claim UK foreign tax credit, you need evidence of the Indian tax actually suffered (TDS certificates, Form 16A, the Indian return) attached to your UK Self Assessment foreign pages. To claim Indian foreign tax credit in a year you are Indian-resident, you need Form 67 filed before the Indian due date plus proof of UK tax. And to claim FIG, you make the claim in the UK Self Assessment return itself within the deadline. None of these is optional, and the TRC and Form 10F in particular have to exist before the income event, not be assembled afterwards.

Edge cases

The transition year you arrive. UK split-year treatment can carve your year of arrival into a non-resident part and a resident part, and for FIG purposes a split year counts as a year of UK residence. The interaction of split-year treatment, the Indian deemed-residence rules, and the Article 4 tie-breaker in your arrival year is the single most error-prone moment; this is the year to pay for advice, not to self-file.

ISAs, UK pensions and Indian tax if you ever return. The treaty does not make a UK ISA tax-free in India. If you later become Indian-resident again, India can tax the income and gains inside your ISA, because India does not recognise the UK wrapper. The same caution applies to UK pension lump sums under Article 20; the residence-based rule decides, and a lump sum can be treated differently from a periodic pension.

Tax-sparing on NRE interest. As covered above, the Article 24(4) and (5) deemed-credit argument is genuinely debated and time-limited. Do not file a UK return claiming a 15% spared credit on exempt NRE interest as if it were settled law; flag it to an adviser and decide deliberately.

You stopped being UK-resident mid-year. Leaving the UK can also trigger split-year treatment and can expose you to the UK's temporary non-residence rules, under which certain gains and income realised while briefly non-resident are taxed when you return. If you are timing an Indian asset sale around a UK departure, check the temporary non-residence rules first.

The closing read

The honest read is that the India-UK treaty is a credit treaty, not an exemption treaty, so for a settled UK resident it rarely makes Indian income cheaper overall; it caps India's rate (10% on dividends, 15% on interest, nothing on capital gains) and then the UK tops you up to its own, usually higher, rate. The real money is in three places. First, the FIG regime: if you are a new arrival inside your first four UK tax years, run the personal-allowance maths every year and claim FIG whenever your relieved Indian income, taxed at your marginal UK rate, beats the 12,570 pound allowance you give up; for someone with substantial NRE interest or Indian dividends, this is worth thousands a year and it expires, so use it before the four-year cliff. Second, the documentation: get your HMRC TRC and Form 10F to every Indian payer before the income is paid, or you finance India's float for a year reclaiming over-deducted TDS. Third, the April boundary: match Indian tax to the right UK year or risk losing the credit. For most UK-resident NRIs the recommendation is plain: claim FIG aggressively while you can, treat NRE deposits as UK-taxable once it ends and reconsider holding them at all, and never sell a large Indian asset near 5 April without checking which tax year the gain and its credit fall into. The exception is the dual-resident in a messy arrival or departure year, and that is precisely the situation where a blog, this one included, is not a substitute for an adviser who files on both sides.

Related guides

• DTAA relief for NRIs
• DTAA mechanics: TRC, Form 10F and Section 90
• Foreign tax credit and Form 67
• The DTAA tie-breaker and dual residency
• NRI residency and RNOR rules
• The India-US tax treaty in depth
• Capital gains tax for NRIs on shares and mutual funds
• Retirement planning across two countries
• All Taxation guides
• All Banking guides
• All Investments guides

This guide is educational and general in nature. It is not individual tax advice. Outcomes depend on your exact residency in both countries, the year you arrived, your treaty position, and rules that changed on 6 April 2025 and may change again. Cross-border UK-India tax, the FIG election, the Article 4 tie-breaker and any tax-sparing claim are areas where the cost of getting it wrong is high, so confirm your specific position with an adviser qualified in both jurisdictions before you file or sell.