The Double Taxation Relief (Taxes on Income) (India) Order 1993

Explanatory Note

(This note is not part of the Order)

The Convention with India is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property may be taxed in the country in which the property is situated (Article 6).

Air transport and shipping profits are generally to be taxed only in the residence state of the operator (Articles 8 and 9).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 10).

The Convention provides that where a United Kingdom company pays a dividend to an individual resident of India, the recipient will, subject to certain conditions, receive the tax credit to which an individual resident in the United Kingdom and in receipt of such a dividend would be entitled, less tax at a rate not exceeding 15 per cent on the aggregate of the dividend and the tax credit. In the case of a dividend paid by an Indian company to a resident of the United Kingdom the tax charged in India is not to exceed 15 per cent of the gross amount of the dividend (Article 11).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 15 per cent of the gross amount flowing to the other country. In the case of interest paid to a bank the rate of tax in the country of source is not to exceed 10 per cent. Certain categories of interest (eg interest paid to the Government of the other country) will be exempt from tax in the source state (Article 12).

The rate of tax in the country of source on industrial royalties and for fees for technical services connected with them and flowing to the other country is 10 per cent. However, for certain other classes of royalties and fees for technical services, the rate of tax in the country of source is 20 per cent in the case of non-Government payers for the first five years of the life of the Convention, reducing to 15 per cent (the same as for Government payers) in subsequent years (Article 13).

Each country may tax capital gains in accordance with its domestic law although gains from the alienation of ships or aircraft operated in international traffic shall be taxable only in the country of residence of the operator (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17). Income derived from the activities of artistes and athletes may be taxed in the country in which those activities are performed (Article 18). Government service remuneration and pensions are normally to be taxed only by the paying Government (Article 19). Occupational pensions (other than those paid in respect of government service) and annuities are to be taxed only in the recipient’s country of residence (Article 20). Payments made to visiting students, apprentices and business trainees are generally exempt from tax in the country visited (Article 21). There is a limited exemption for visiting teachers (Article 22). Other income (with the exception of income from trusts and estates of deceased persons under administration) not specified in the Convention remains taxable only in the recipient’s country of residence (Article 23).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in India includes credit for tax spared under certain provisions of Indian law. In the case of dividends, the United Kingdom will give credit for the underlying tax paid in India where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 24).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26), and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax, on or after 6th April for income tax and capital gains tax and on or after 1st January in respect of petroleum revenue tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.