India to UK Withholding Tax Rates Under DTAA
When an Indian company or individual makes payments to a UK resident, withholding tax must be deducted at source, at the rates in force, under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-UK DTAA, signed on 25 January 1993 and modified by the 2012 Protocol and the MLI, provides reduced withholding rates compared to India's domestic rates of 20% (plus applicable surcharge and cess).
Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the taxpayer can apply whichever rate is more beneficial — the treaty rate or the domestic rate. Because the India-UK DTAA rates in the tables below sit at or under the general domestic rates in section 207 of the Income-tax Act, 2025 — section 207(1) (Table, Sl. Nos. 1–3) for dividends and interest, and section 207(2) (Table, Sl. Nos. 1 and 2) for royalties and fees for technical services (section 115A of the Income-tax Act, 1961) — the treaty rate is normally the beneficial one for UK residents with proper documentation — though a concessional domestic rate for a specified borrowing can occasionally be lower still, in which case section 159(4) allows that rate instead. For the full treaty analysis, see our India-UK DTAA complete guide.
The MLI modifications (effective from FY 2020-21) have introduced the Principal Purpose Test (PPT), which means treaty benefits can be denied if one of the principal purposes of an arrangement was to obtain the reduced rates. UK recipients should ensure their structures have genuine economic substance.
Dividend Withholding Rates
Under Article 11 of the India-UK DTAA, dividends paid by an Indian company to a UK resident are subject to the following withholding rates:
| Category | DTAA Rate | Domestic Rate | Effective Rate | Conditions |
|---|---|---|---|---|
| General dividends | 10% | 20% | 10% | Dividends paid to a UK resident who is the beneficial owner, in standard cases |
| Immovable property companies | 15% | 20% | 15% | Dividends from investment vehicles deriving value from immovable property and distributing most income annually |
Key points: The India-UK DTAA provides one of the most favorable dividend withholding rates in India's treaty network at just 10% for general dividends. This is significantly lower than the India-USA rate (15% for substantial holdings, 20% effective for portfolio investors) and comparable to rates under India's treaties with Singapore and the Netherlands.
Since India abolished the Dividend Distribution Tax (DDT) from 1 April 2020, dividends are taxable in the hands of the recipient. UK companies receiving dividends from Indian subsidiaries benefit from a 10-percentage-point saving compared to the domestic withholding rate. The UK provides double taxation relief through its own tax credit system, meaning the Indian withholding tax can be credited against UK corporation tax liability.
To claim the 10% rate, the UK recipient must be the beneficial owner of the dividends. Post-MLI, the PPT adds an additional substance requirement — conduit arrangements designed solely to access the favorable 10% rate may be challenged.
Interest Withholding Rates
Article 12 of the India-UK DTAA provides two reduced rate tiers and two full exemptions:
| Category | DTAA Rate | Domestic Rate | Effective Rate | Article Reference |
|---|---|---|---|---|
| General interest | 15% | 20% | 15% | Article 12(2) |
| Banks (bona fide banking business) | 10% | 20% | 10% | Article 12(3)(a) |
| Government, local authority or the Reserve Bank of India as recipient | Nil | 20% | Nil | Article 12(3)(b) |
| Debt made, guaranteed or insured by ECGD / UK Export Finance | Nil | 20% | Nil | Article 12(4) |
UK banks such as HSBC, Barclays, Standard Chartered, and Lloyds that lend to Indian companies benefit from the reduced 10% rate on interest payments. This 10-percentage-point reduction from the domestic 20% rate substantially lowers the effective cost of external commercial borrowings from UK banks. The tier is confined to a bank carrying on a bona fide banking business: non-bank lenders, including insurance companies, funds and other financial institutions, fall into the 15% general tier.
Two full exemptions sit alongside the two tiers. Under Article 12(3)(b), interest paid to the Government of either State, a political sub-division or local authority of that State, or the Reserve Bank of India is not taxed in the source State at all. Under Article 12(4), interest on a loan or other debt-claim made, guaranteed or insured by the UK Export Credits Guarantee Department (now UK Export Finance) is exempt from Indian tax, and debt guaranteed or insured by India's ECGC or Exim Bank is exempt in the UK.
For general interest (such as inter-company loans between a UK parent and its Indian subsidiary), the treaty rate of 15% still offers a 5-percentage-point saving. Indian companies borrowing from UK group entities should ensure the loan arrangements are at arm's length to avoid transfer pricing challenges and thin capitalization issues under Section 177 of the Income-tax Act, 2025 (section 94B of the Income-tax Act, 1961).
The Article 12(5) definition of interest covers income from debt-claims of every kind, whether or not they carry a right to participate in the debtor's profits, but excludes any item treated as a distribution under Article 11. An item that falls out of Article 12 on that basis is taxed as a dividend, where the general treaty rate is 10%.
Royalty and FTS Withholding Rates
Article 13 of the India-UK DTAA covers both royalties and fees for technical services (FTS) in a single article, with the rate turning on the category of payment:
| Category | DTAA Rate | Domestic Rate | Effective Rate | Key Distinction |
|---|---|---|---|---|
| Equipment royalties | 10% | 20% | 10% | Use of industrial, commercial, or scientific equipment |
| Copyright/IP royalties | 15% | 20% | 15% | Copyrights, patents, trademarks, designs, know-how |
| Fees for technical services (make-available or ancillary to an IP royalty) | 15% | 20% | 15% | Technical or consultancy services only; managerial services are outside Article 13(4) |
| Fees for technical services (ancillary to an equipment royalty) | 10% | 20% | 10% | Services ancillary and subsidiary to the equipment let under Article 13(3)(b) |
Royalty Categories Explained
The treaty distinguishes between two categories of royalties with different rates:
Category (a) — Copyright and IP royalties at 15%: This covers payments for the use of or right to use copyrights of literary, artistic, or scientific works (including films), patents, trademarks, designs, models, plans, secret formulas or processes, and information concerning industrial, commercial, or scientific experience (know-how).
Category (b) — Equipment royalties at 10%: This covers payments for the use of or right to use industrial, commercial, or scientific equipment. UK companies leasing equipment to Indian entities benefit from the lower 10% rate. This distinction is important for businesses providing equipment on hire or lease — characterizing the arrangement correctly can result in a 5-percentage-point saving.
Fees for Technical Services — the "Make Available" Test Applies
Like the India-USA DTAA, the India-UK treaty contains a make-available test. Article 13(4) reaches only technical or consultancy services — managerial services are not within the FTS definition — and only where those services (a) are ancillary and subsidiary to the right, property or information for which an Article 13(3)(a) royalty is paid, (b) are ancillary and subsidiary to the equipment for which an Article 13(3)(b) royalty is paid, or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.
Limbs (a) and (c) carry the 15% rate under Article 13(2)(a)(ii); limb (b) takes the 10% equipment rate under Article 13(2)(b). Services that fail the test — routine management support, and technical or consultancy work that leaves the Indian recipient no more able to apply the technology on its own — fall outside Article 13 entirely and are business profits, taxable in India only through a permanent establishment. Managerial and other services can, however, create a services PE of their own under Article 5(2)(k) where they continue for more than 90 days in any twelve-month period — or more than 30 days where the services are performed for an associated enterprise within Article 10(1). Article 13(5) separately excludes services connected with a sale of property, the rental of ships, aircraft or containers, teaching, services for an individual's private use, and payments to employees or to individuals taxed under the personal-services articles.
Where the UK company does have a PE in India and the services are effectively connected with it, Article 13(6) sends the income to Article 7 as business profits, taxed at the foreign-company rate of 35% plus surcharge and cess rather than at the 15% treaty cap.
Capital Gains Treatment
Article 14 of the India-UK DTAA follows a straightforward approach — each contracting state may tax capital gains in accordance with its domestic law. There is no specific reduced rate for capital gains under the treaty. See our dedicated guide on how India will tax capital gains in accordance with its domestic law for the full share, property and residency-based rules. The key domestic rates that apply are:
Long-term capital gains on listed shares: 12.5% (exceeding INR 1.25 lakh threshold) on gains from shares held for more than 12 months, with securities transaction tax paid at the time of sale.
Long-term capital gains on unlisted shares: 12.5% on gains from shares held for more than 24 months.
Short-term capital gains on listed shares: 20% (with STT) on gains from shares held for 12 months or less.
Short-term capital gains on unlisted shares: Taxable at the rate applicable to the seller — 35% plus surcharge and cess for a foreign company (the foreign-company rate since 1 April 2024), and slab rates up to 30% for a non-resident individual.
Gains from immovable property: Taxed in the country where the property is situated at applicable domestic rates.
The India-UK DTAA provides that UK residents taxed on capital gains in India can claim a foreign tax credit in the UK against their UK capital gains tax or corporation tax liability, thereby avoiding economic double taxation.
How to Apply Reduced Rates
To apply the reduced India-UK DTAA rates, both the UK recipient and the Indian payer must complete specific procedural steps:
For the UK Recipient
- Obtain HMRC Certificate of Residence — Apply to HMRC using form RES1 for a Tax Residency Certificate confirming UK residency for the relevant period. HMRC issues this as a letter on their headed paper.
- Complete Form 41 (formerly Form 10F) — File Form 41 electronically on the Indian Income Tax portal with the prescribed details (name, status, nationality, UK Unique Taxpayer Reference, period of residential status).
- Self-declaration — Provide a declaration confirming beneficial ownership of the income, absence of a PE in India (if relevant), and that the arrangement does not have treaty benefit access as a principal purpose (PPT compliance).
- No PE declaration — If claiming the income is not connected with a PE, include a specific declaration to that effect.
For the Indian Payer
- Collect and verify all documents — TRC, Form 41, self-declaration, and PAN of the UK recipient (or Form 41 in lieu of PAN).
- File Form 145 (formerly Form 15CA) online — Submit Form 145 on the Income Tax portal before making the outward remittance. This is mandatory for all foreign remittances exceeding specified thresholds.
- Obtain Form 146 (formerly Form 15CB) — For payments exceeding INR 5 lakh, obtain a Chartered Accountant's certificate in Form 146 certifying the nature of the payment, applicable treaty rate, and TDS compliance.
- Section 395(2) determination, or the payee's section 395(1) certificate — The lower or nil withholding certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) is applied for by the payee, so the Indian payer's own route to a reduced deduction is an application to the Assessing Officer under section 395(2) of the Income-tax Act, 2025 (section 195(2) of the Income-tax Act, 1961). Where the UK recipient already holds a section 395(1) certificate, deduct at the rate that certificate specifies.
Beacon Filing's cross-border payments team handles the complete compliance workflow for India-UK remittances, ensuring correct treaty rate application and timely filing of all forms.
Domestic Rates vs Treaty Rates Comparison
The table below provides a comprehensive comparison of India's domestic withholding rates for payments to non-residents against the India-UK DTAA rates, including the effective savings:
| Income Type | Domestic Rate (section 393(2)) | DTAA Rate | Savings | Effective Domestic Rate (with cess) |
|---|---|---|---|---|
| Dividends (general) | 20% | 10% | 10% | 20.8% |
| Dividends (immovable property) | 20% | 15% | 5% | 20.8% |
| Interest (bank lenders) | 20% | 10% | 10% | 20.8% |
| Interest (Government / RBI recipient, or ECGD-backed debt) | 20% | Nil | 20% | 20.8% |
| Interest (general) | 20% | 15% | 5% | 20.8% |
| Equipment royalties | 20% | 10% | 10% | 20.8% |
| Copyright/IP royalties | 20% | 15% | 5% | 20.8% |
| Fees for technical services (make-available or IP-ancillary) | 20% | 15% | 5% | 20.8% |
| Fees for technical services (equipment-ancillary) | 20% | 10% | 10% | 20.8% |
Surcharge and cess: Under domestic law, the basic 20% rate is increased by applicable surcharge (2% to 5% depending on the income level) and health and education cess of 4%, resulting in effective rates of 20.8% to 21.84%. When treaty rates apply, surcharge and cess are NOT levied on top of the treaty rate. This means the actual savings from applying the DTAA are even greater than the headline rate difference. For example, for general dividends, the effective saving is 10.8% (20.8% domestic vs 10% treaty).
For UK businesses with significant cross-border payment flows with India, these savings can amount to substantial sums annually. A UK parent company receiving GBP 1 million in dividends from its Indian subsidiary saves approximately GBP 108,000 per year by applying the DTAA rate versus the domestic rate.
Common Mistakes and Compliance Tips
Mistake 1: Confusing Royalty Categories
The India-UK DTAA distinguishes between equipment royalties (10%) and IP/copyright royalties (15%). Incorrectly categorizing an equipment lease as a technology license or vice versa can result in either overpayment (applying 15% to what should be 10%) or short deduction notices from the Income Tax Department. Carefully analyze the substance of the payment to determine the correct category.
Mistake 2: Not Accounting for MLI Changes
Since the MLI modifications became effective from FY 2020-21, the India-UK DTAA now includes the Principal Purpose Test. UK companies using intermediary holding structures to route payments through the UK should ensure there is genuine economic substance and that accessing the treaty was not a principal purpose. Failure to satisfy the PPT can result in denial of treaty benefits and assessment at domestic rates.
Mistake 3: Misreading the FTS Scope
The India-UK FTS definition is narrow, not broad: Article 13(4) reaches technical or consultancy services only where they are ancillary to a royalty or make available technical knowledge, skill or know-how, and it excludes managerial services altogether. Withholding 15% on every service invoice over-deducts on routine managerial work; assuming nothing is taxable over-corrects the other way, because make-available services and services ancillary to a licence are squarely covered and non-deduction attracts demand notices with interest under section 398 of the Income-tax Act, 2025 (section 201 of the Income-tax Act, 1961). Test each engagement against Article 13(4) instead of applying a blanket rate.
Mistake 4: Late or Missing Forms 145 and 146
Filing Forms 145 and 146 is mandatory before remittance. Late filing attracts a penalty under section 462 of the Income-tax Act, 2025 (section 271-I of the Income-tax Act, 1961), up to INR 1 lakh per default. Many payers submit these forms after the remittance, which technically makes the filing non-compliant. Always file before the bank processes the payment.
Mistake 5: Not Tracking Services PE Threshold
UK professional services firms often send employees to India for short assignments without tracking cumulative days. If the total days of service provision (across all employees) exceed 90 days in any 12-month period, a services PE is triggered under Article 5(2)(k)(i) — and the threshold drops to 30 days under Article 5(2)(k)(ii) where the services are performed for an associated enterprise, which catches most intra-group secondments. Implement a tracking system for all employee deployments to India.
Mistake 6: Failing to Claim UK Tax Credit
UK residents who have had Indian withholding tax deducted should claim double tax relief on their UK self-assessment return or corporation tax return. Unclaimed credits result in effective double taxation despite the treaty being in force.
For comprehensive compliance support on India-UK cross-border payments, contact Beacon Filing's tax advisory team.
Frequently Asked Questions
What is the withholding tax rate on dividends paid from India to the UK?
The India-UK DTAA provides a 10% withholding rate on general dividends (compared to 20% domestic rate), making it one of the most favorable dividend rates in India's treaty network. For dividends from immovable property investment vehicles, the rate is 15%.
Do UK technology companies need to withhold tax on payments from Indian clients?
It depends on what the services do. Where an Indian company pays a UK technology company for services that qualify as fees for technical services, the Indian payer deducts at 15% under Article 13 of the India-UK DTAA, or at 10% where the services are ancillary to an equipment royalty. Article 13(4) covers technical or consultancy services only where they are ancillary to a royalty or 'make available' technical knowledge, experience, skill, know-how or processes; managerial services are outside the definition, and services that fail the test are business profits taxable in India only through a permanent establishment. The UK company can claim a tax credit in the UK for the Indian tax withheld.
How does the India-UK DTAA compare with the India-Singapore DTAA for dividends?
Both treaties provide a 10% rate on general dividends, making them equally favorable. However, the India-Singapore DTAA has additional benefits for capital gains under certain conditions. Investors should compare the full treaty provisions based on their specific transaction structure.
Is there a lower rate for interest on government-to-government loans under the India-UK DTAA?
Yes. Article 12(3)(b) exempts interest paid to the Government of either State, a political sub-division or local authority of that State, or the Reserve Bank of India — it is not taxed in the source State at all. Article 12(4) adds a guarantor-based exemption: interest on a loan or debt-claim made, guaranteed or insured by the UK Export Credits Guarantee Department (now UK Export Finance) is exempt in India, and debt guaranteed or insured by India's ECGC or Exim Bank is exempt in the UK. Outside these exemptions the rate is 10% for a bank carrying on a bona fide banking business (Article 12(3)(a)) and 15% in all other cases (Article 12(2)).
Can a UK company apply for a nil withholding certificate for recurring service payments?
Yes. Under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961), the UK company applies in its own name, as the payee, to the Assessing Officer for a certificate authorizing lower or nil withholding; the Indian payer's equivalent route is an application under section 395(2) of the Income-tax Act, 2025 (section 195(2) of the Income-tax Act, 1961). This is useful where the UK company's actual tax liability in India is expected to be nil — for example, if the service income is not taxable in India due to the absence of a PE.
What is the penalty for not filing Forms 145 and 146?
Under section 462 of the Income-tax Act, 2025 (section 271-I of the Income-tax Act, 1961), failure to furnish information (Forms 145 and 146) or furnishing inaccurate information attracts a penalty of INR 1 lakh per default. Additionally, non-filing may result in the bank refusing to process the outward remittance.
This article is for general information only and is not legal, tax, or investment advice. Confirm current rules with the relevant authority or a qualified professional — or ask our team. See our full disclaimer.
Doing business between India and UK? Our team handles the treaty filings.
Tax Advisory for Foreign Investors in IndiaUK — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Dividends paid to a UK resident who is the beneficial owner, in cases not involving immovable property companies | 10% | 20% | Article 11(2)(b) |
| Immovable property companies Dividends derived directly or indirectly from immovable property by an investment vehicle distributing most of its income annually | 15% | 20% | Article 11(2)(a) |
UK — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Interest paid to a UK resident who is the beneficial owner, where no lower tier or exemption applies | 15% | 20% | Article 12(2) |
| Banks Interest paid to a bank carrying on a bona fide banking business which is a resident of the other State and the beneficial owner of the interest. Non-bank lenders, including insurance companies and other financial institutions, do not qualify for this tier | 10% | 20% | Article 12(3)(a) |
| Government, local authorities and the Reserve Bank of India Interest paid to the Government of a Contracting State, a political sub-division or local authority of that State, or the Reserve Bank of India is not subject to tax in the source State | Nil | 20% | Article 12(3)(b) |
| Export-credit guaranteed debt Interest on a loan or debt-claim made, guaranteed or insured by the UK Export Credits Guarantee Department (now UK Export Finance) is exempt in India; debt guaranteed or insured by India's ECGC or Exim Bank is exempt in the UK | Nil | 20% | Article 12(4) |
UK — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Equipment royalties (industrial, commercial, scientific equipment) Payments for the use of or right to use industrial, commercial, or scientific equipment | 10% | 20% | Article 13(2)(b) |
| Copyright and IP royalties (patents, trademarks, designs, know-how) Payments for use of or right to use copyrights, patents, trademarks, designs, models, plans, secret formulas, processes, or information concerning industrial, commercial or scientific experience | 15% | 20% | Article 13(2)(a)(ii) |
UK — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Fees for technical services (make-available, or ancillary to an IP royalty) Technical or consultancy services -- managerial services are outside the definition -- that are ancillary and subsidiary to the IP for which an Article 13(3)(a) royalty is paid, or that make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or design (Article 13(4)(a) and (c)) | 15% | 20% | Article 13(2)(a)(ii) |
| Fees for technical services (ancillary to an equipment royalty) Technical or consultancy services ancillary and subsidiary to the enjoyment of the equipment for which an Article 13(3)(b) royalty is paid (Article 13(4)(b)) | 10% | 20% | Article 13(2)(b) |