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Double Tax Avoidance Agreement: India and UK, Summaries of Law

Sharda UniversityLaw

The double tax avoidance agreement (dtaa) between india and the united kingdom. It explains the purpose of dtaa, which is to prevent taxpayers from being subjected to double taxation on income generated in both their country of residence and their country of source. The relevant sections of the income tax act, 1961 that provide relief under dtaa, and then delves into the specific articles of the dtaa convention between india and the uk. These articles cover topics such as taxation of income from immovable property, business profits, air transportation, shipping, associated enterprises, and dividends. A comprehensive overview of the dtaa between india and the uk, highlighting the key provisions and their implications for taxpayers in both countries.

Typology: Summaries

2022/2023

Uploaded on 11/26/2022

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Double Tax Avoidance Agreement: INDIA AND UK
Double Tax Avoidance Agreement
To prevent taxpayers from being subjected to double taxation on income generated in both their
country of residence and their country of source, India, and another country (or any two/multiple
countries) sign the Double Taxation Avoidance Agreement (DTAA). A total of 85 countries
around the world now have double taxation agreements with India.
For instance, if you leave income sources in India and move to a different country, such as
interest from savings, both India and the country where you are currently residing will charge
you interest based on your total combined earnings. You can end paying twice as much tax on
the same income in such a situation.
The imbalance in tax collection on personal income worldwide is the root cause of the necessity
for DTAA. If a person wants to run a business in another nation, he or she may have to pay
income taxes in both nations—the one where the revenue is made and the one where the person
is a citizen. The DTAA helps taxpayers in this situation.
Section 90, 90A and 91 of The Income Tax Act, 1961 1
Section 90 enumerates on bilateral relief provided under DTAA on:
a. Income for which both federal income taxes and local taxes in the country or designated
territory have been paid.
b. Income taxes levied to advance international commerce, investment, and economic ties.
c. To avoid paying double income tax in both the countries.
d. For the investigation of instances of such evasion or avoidance of income tax charged and
for the sharing of information for those purposes.
e. For the recovery of income tax and to establish any measures that may be required for
putting the agreement into effect.
Section 90A enumerates on the same relief provided under DTAA for Specified Associations
and Section 91 enumerates on unilateral relief provided if DTAA does not exist between the
countries.
India and UK 2
A Convention between India and UK for the avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income and capital gains came into force on 26 October
1 The Income Tax Act 1961: https://www.indiacode.nic.in/handle/123456789/2435?sam_handle=123456789/1362
2 UK – Comprehensive Agreement: https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx
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Double Tax Avoidance Agreement: INDIA AND UK Double Tax Avoidance Agreement To prevent taxpayers from being subjected to double taxation on income generated in both their country of residence and their country of source, India, and another country (or any two/multiple countries) sign the Double Taxation Avoidance Agreement (DTAA). A total of 85 countries around the world now have double taxation agreements with India. For instance, if you leave income sources in India and move to a different country, such as interest from savings, both India and the country where you are currently residing will charge you interest based on your total combined earnings. You can end paying twice as much tax on the same income in such a situation. The imbalance in tax collection on personal income worldwide is the root cause of the necessity for DTAA. If a person wants to run a business in another nation, he or she may have to pay income taxes in both nations—the one where the revenue is made and the one where the person is a citizen. The DTAA helps taxpayers in this situation. Section 90, 90A and 91 of The Income Tax Act, 1961^1 Section 90 enumerates on bilateral relief provided under DTAA on: a. Income for which both federal income taxes and local taxes in the country or designated territory have been paid. b. Income taxes levied to advance international commerce, investment, and economic ties. c. To avoid paying double income tax in both the countries. d. For the investigation of instances of such evasion or avoidance of income tax charged and for the sharing of information for those purposes. e. For the recovery of income tax and to establish any measures that may be required for putting the agreement into effect. Section 90A enumerates on the same relief provided under DTAA for Specified Associations and Section 91 enumerates on unilateral relief provided if DTAA does not exist between the countries. India and UK^2 A Convention between India and UK for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains came into force on 26 October (^1) The Income Tax Act 1961: https://www.indiacode.nic.in/handle/123456789/2435?sam_handle=123456789/ (^2) UK – Comprehensive Agreement: https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx

  1. To understand the Articles of this convention, “other state” and “that state” will refer to India or the UK, in accordance with the context of the article. Article 2 enumerates on the taxes covered under the Convention. It includes: UK a. Income Tax b. Corporation Tax c. Capital Gains Tax d. Petroleum Revenue Tax India a. Income including any surcharge Article 6 enumerates that income from immovable property may be taxed in India or UK wherever such property is situated. Article 7 enumerates on business profits
  2. Unless an enterprise does business in another country through a permanent establishment there, the earnings of an enterprise in India or the UK are only taxed in that state where the enterprise is located. Only the portion of the enterprise's profits that may be directly or indirectly linked to that permanent establishment which is taxed in the other state.
  3. The profits that permanent establishment makes if it were a distinct and independent company are treated as profits that can be directly attributed to the company from which the permanent establishment is a part.
  4. If a permanent establishment actively participates in the negotiation, conclusion, or performance of contracts entered by the enterprise, regardless of whether other parts of the enterprise have also participated in those transactions, the permanent establishment's contribution to those transactions will be compared to the enterprise's overall contribution.
  5. The provisions of this Article should not prevent India or the UK from determining the profits to be taxed through an apportionment as may be required; however, the method of apportionment adopted shall be such that the result should be in accordance with this Article.
  6. Expenses that are incurred for the purposes of the business of a permanent establishment, including executive and general administrative expenses, whether in India or the UK in which the permanent establishment is situated or elsewhere, shall be allowed as deductions in determining the profits of a permanent establishment, subject to the limitations of the law in which the permanent establishment is situated.
  1. That other state shall make an equivalent adjustment to the amount of the tax levied on such earnings if the conditions set between the two firms had been those that would have been made between independent enterprises. The other articles of this Convention must be given serious consideration for making such an adjustment, and the Indian or the UK competent authorities may need to contact one another. Article 11 enumerates on dividends
  2. Dividends given by an Indian corporation to a British resident may be taxed in the UK and vice versa.
  3. However, these dividends may also be taxed in India or the UK, where the business is based, and in accordance with the legislation of that state; however, if the beneficial owner of the dividends is a resident of the other state, the tax so imposed should not exceed: a. 15% of the gross amount of dividends paid out of income (including profits) from immovable property as defined by Article 6 by an investment vehicle that distributes most of this income yearly and whose income from such immovable property is tax- exempt. b. 10% of the dividends' gross amount in all other circumstances.
  4. The taxes of the firm regarding the earnings from which the dividends are paid is unaffected by the requirements of this Article.
  5. If a company that is a resident of India or the UK receives income or profits from the other state, that state may not tax the dividends paid by the company, unless those dividends are paid to residents of that other state or if the holding for which the dividends are paid is inextricably linked to a permanent establishment there. Additionally, the company's undistributed profits may not be subject to a tax on capital gains. Conclusion DTAA refers to Double Tax Avoidance Agreement, which is a tax agreement between any two countries or multiple countries to avoid double taxation in terms of income or business in a foreign country. DTAA is a necessity for people who incur personal income in foreign countries. Various provisions in the Income Tax Act 1961 provide relief in terms of DTAA. India and UK established a convention for DTAA in 1993 with various Articles governing the same.