The India-UK Tax Treaty (DTAA), Article by Article: India as Source State, the UK as Residence State

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Key facts

The frame: India is the source state, the UK is the residence state

Each article gives one country the right to tax first (the source state, where the income arises) and the other a duty to relieve double tax (the residence state, where the recipient lives). For a UK parent with an Indian subsidiary, India is the source state and the UK is the residence state. The treaty only ever limits India's domestic rate; the lower of the Income-tax Act rate and the treaty rate applies.

The Indian subsidiary is a separate Indian resident company, so the treaty does not reduce its own tax. It matters when money flows to the parent, when the parent's staff work in India, and when the two companies price transactions.

Tax rates under the treaty, article by article

Article numbers follow the consolidated text published by HMRC, which includes the effect of the MLI.

Treaty rate against domestic rate for payments to the UK parent (domestic rate: 20% plus surcharge and cess on payments to a non-resident, before treaty relief)

Articles 1 to 4: scope, taxes covered, definitions and residence

• Article 1: the treaty applies to residents of the UK or India, or both. An MLI clause also means it does not limit a country's right to tax its own residents, apart from listed benefits.
• Article 2, taxes covered: in the UK, income tax, corporation tax, capital gains tax and petroleum revenue tax; in India, income tax with any surcharge. GST, VAT and stamp duty are not covered.
• Article 3: definitions, including the competent authorities, the fiscal year and international traffic. Undefined terms take their meaning from domestic law.
• Article 4, residence: a person is resident if liable to tax by reason of domicile, residence, management or incorporation. A company resident in both countries is no longer sorted by place of effective management alone: under the MLI the two tax authorities try to agree its residence, and relief may be denied if they cannot. Individuals are sorted by permanent home, centre of vital interests, habitual abode and nationality.

A UK company claims the treaty with an HMRC certificate of residence, which confirms residence for a stated period. It must cover the payment dates, and the parent must also be the beneficial owner of the income, not a pass-through.

Article 5: permanent establishment (PE) in India

A PE is a taxable presence. With one, India taxes the profits attributed to it (Article 7). Without one, India cannot tax the UK company's business profits, however much it sells into India. The UK treaty is stricter than many on services.

What does not create a PE: storing, displaying or delivering goods; keeping stock only for processing; buying goods or collecting information; and other preparatory or auxiliary activities. Under the MLI these exclusions are lost where the activities are part of a cohesive business operation split across related entities. An independent agent working for several principals is not a PE, but one that works wholly or almost wholly for your group is not independent. Owning or controlling a subsidiary does not make it your PE.

Why the 30-day associated-enterprise test matters: if UK staff spend more than 30 days in a 12-month period providing services to the Indian subsidiary (support, training, management), the UK company may have a PE even though the subsidiary is a separate entity. Track days by person and by project, and keep the services under a written agreement priced at arm's length.

Articles 6 to 10: property, business profits, shipping and associated enterprises

• Article 6: income from Indian land and buildings, including rights to mineral payments, may be taxed in India without a treaty cap.
• Article 7: business profits are taxed in India only if attributable to a PE, and then only the attributable part, worked out as if the PE were an independent enterprise dealing at arm's length. Executive and general administrative expenses are deductible, but head-office charges are restricted. Merely purchasing goods attributes no profit. Profits of an Indian PE of a foreign company are taxed under domestic law at the foreign-company rate (35% plus surcharge and cess).
• Articles 8 and 9: profits from international air transport and shipping are taxed only in the residence state.
• Article 10: where the conditions between related companies are not arm's length, India may adjust the Indian company's profit, and the UK should make a corresponding adjustment. See transfer pricing.

Articles 11 to 13: dividends, interest, royalties and fees

• Article 11, dividends: India may tax a dividend paid to a UK company at up to 10%. The cap is 15% only where the dividend comes from a property investment vehicle that distributes most of its income and is itself tax-exempt. India cannot tax undistributed profits of a company because of the shareholder's residence.
• Article 12, interest: up to 15%, or 10% where the interest is paid to a bona fide bank. Interest paid to the governments, the Reserve Bank of India, and on loans guaranteed by the UK or Indian export-credit agencies, is exempt. Interest above an arm's length amount between connected parties is taxed under domestic law.
• Article 13, royalties and fees for technical services: up to 15%, or 10% for equipment royalties and ancillary services. Royalties cover copyright, patents, designs, know-how, formulae and equipment. Fees for technical services cover technical or consultancy services and services that make available technical knowledge, experience, skill, know-how or processes. Services ancillary to a sale, teaching, private-use services and services to individuals are excluded. A transitional 20% rate for private payers applied only in the first five years and has ended.

The caps apply to the gross amount with no deduction for expenses. If the recipient is not the beneficial owner, or the arrangement fails the principal purpose test, the domestic rate applies.

Article 14: capital gains when the parent sells the subsidiary

Article 14 does not allocate gains on shares to one country. Each country may tax capital gains under its own law, apart from ships and aircraft. India therefore taxes a UK parent's gain on shares of an Indian company under the Income-tax Act, 2025: long-term gains on unlisted shares held more than 24 months at 12.5% (plus surcharge and cess), and short-term gains at higher rates. In the UK, a gain on shares in a trading subsidiary is often exempt under the substantial shareholding exemption, provided the parent held at least 10% for 12 months and the conditions are met, so the Indian tax can be a final cost. Plan a sale with both advisers. See exit and restructuring.

Articles 15 to 22: people, directors and employees

• Article 15, independent personal services: a UK consultant is taxed only in the UK unless present in India for 90 days or more in the fiscal year, or having a regular fixed base there.
• Article 16, employment: pay for work done in India is taxable in India unless all three conditions are met: the employee is in India for no more than 183 days in the fiscal year, the employer is not resident in India, and the cost is not borne by an Indian PE or fixed base. A UK employee seconded to the Indian subsidiary and recharged to it usually fails the third test.
• Article 17, directors: fees from an Indian company can be taxed in India.
• Article 18, artistes and athletes: taxed where they perform.
• Articles 19 and 20: government pay; pensions and annuities are taxed only in the residence state.
• Articles 21 and 22: students, trainees, teachers and researchers have specified exemptions (teaching or research for up to two years).

The 183-day test, Indian residence and social security are covered in UK employees in India.

Articles 23 to 24 and 26: other income, relief and non-discrimination

• Article 23, other income: income not covered elsewhere is taxed in the residence state, and the source state may also tax income that arises there.
• Article 24, relief: the UK gives a credit for Indian tax, and for a UK company holding at least 10% of the voting power the credit extends to the underlying Indian corporate tax on dividends. In practice most dividends are exempt in the UK under the distribution exemption, so the Indian withholding is a cost, while interest, royalties and fees are taxed in the UK with credit for Indian tax. India gives a credit for UK tax, limited to the Indian tax on that income. The treaty's tax-sparing rules for old Indian incentives are time-limited and no longer matter for new investments.
• Article 26, non-discrimination: a PE or a company owned by UK residents may not be taxed more heavily than a comparable Indian business, and payments to UK residents must be deductible on the same terms as payments to residents.

Articles 27 to 28C: disputes, information and collection

• Article 27, mutual agreement procedure (MAP): present the case to the competent authority within three years of the first notification of the action that is not in line with the treaty. Agreements are carried out despite domestic time limits.
• Article 28, exchange of information: information that is foreseeably relevant is exchanged, and bank secrecy is not a ground to refuse. Article 28A allows tax examinations abroad with consent.
• Article 28B, assistance in collection: each country can help collect the other's enforceable claims and take protective steps.
• Article 28C and the MLI: the treaty has no separate limitation-on-benefits article; the MLI's principal purpose test denies a benefit if obtaining it was one of the principal purposes of an arrangement, unless granting it fits the treaty's object and purpose.

Articles 29 to 31: diplomats, entry into force and termination

Article 29 preserves diplomatic and consular privileges. Article 30 brought the treaty into force, replacing the 1981 convention. Article 31 lets either country end it by diplomatic notice of at least six months, given before the end of a calendar year, with effect from the following fiscal year. The MLI modified the treaty for withholding taxes from 1 January 2020 in the UK and 1 April 2020 in India, and for other taxes from tax periods beginning on or after 1 April 2020 (corporation tax) and 6 April 2020 (income tax and capital gains tax) in the UK.

How to claim treaty benefits, step by step

1. Request an HMRC certificate of residence for the period of the payments. Allow time, because HMRC issues it on request and it covers a stated period.
2. Prepare Form 41 (previously Form 10F) with residence details, and give it with the certificate to the Indian payer.
3. Give a no-PE declaration and evidence of beneficial ownership if the payer or the tax officer asks.
4. The Indian subsidiary applies the treaty rate under Section 393 and keeps the documents on file.
5. Where required, a Chartered Accountant certifies the payment (Form 146, previously Form 15CB) and the company files Form 145 (previously Form 15CA).
6. The parent obtains the Indian Withholding Tax certificate for its UK return and credit claim.

What this means for a UK parent

• Budget 10% on dividends: it is a cost of repatriation because the UK normally exempts them. Compare with interest, royalties and fees, which are taxed in the UK but must be priced at arm's length.
• Keep a project-by-project day log for UK staff in India against the 90-day and 30-day PE tests, and review it before each quarter ends.
• Renew the HMRC certificate for each payment period and file Form 41 with it.
• Check the principal purpose test if a holding company sits between the UK and India.
• Plan an exit using Article 14 and the UK substantial shareholding exemption.

Mistakes to avoid

• Applying the 10% dividend rate before the certificate and Form 41 are on file.
• Missing the 30-day associated-enterprise services test because the day count is kept by person rather than by project.
• Treating every service fee as a royalty at 15% when many are not taxable in India at all without a PE.
• Using an HMRC certificate that does not cover the payment date.
• Ignoring the principal purpose test when inserting a holding company.

Official sources

Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, HMRC, Companies House and the UK legalisation service for apostilles.

Frequently asked questions

Related guides

Sources

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Last updated 19 October 2026. General information only, not legal or tax advice. Indian and UK rules change often; confirm current requirements before acting.