Tax guide for UK-based NRIs

I have been living in the UK since 2010 when I started my degree. My family lives in India and I visit them once every year. Since all of my income and most of my financial assets are based in the UK, I had not previously looked into tax liabilities for any income/assets in India. Recently, I have been wondering whether I should move some of my assets to India. Is there any financial benefit to doing so? This prompted me to deep dive into the tax implications of keeping assets in India.

Table of contents

• Tax wrappers in the UK: Tuck away up to £80,000 of income per year
• Tax liability in India for NRIs
  • If you reside outside of India for more than 182 days, then you're a Non-Resident Indian [NRI]
  • NRIs are not allowed to hold regular savings accounts, only NRO or NRE accounts
  • NRO accounts are intended for domestic funds and NRE account for foreign funds
  • To invest NRIs need a Demat account linked to a NRE PIS account or a NRO account
  • NRI's income in India is taxable in India
  • NRIs may have to submit Income Tax Returns (ITR) in India
• Tax liability in UK for foreign income
  • Non-domiciled UK residents get special treatment for taxation in the UK (for now)
  • UK resident's foreign income is taxable in the UK
• Transferring money b/w India and the UK
  • Be aware of currency risk
  • Transfer from UK to India is cheap and easy
  • Transfer from India to the UK is more expensive and difficult
    • Transfer abroad from NRE account via bank
    • Transfer abroad from NRO account involves more process
    • Residents may need to pay 20% TCS on outward remittance but can claim it back in ITR
• Do your own research and consult an advisor if appropriate
• Conclusion

Tax wrappers in the UK: Tuck away up to £80,000 of income per year

Although the focus of this article will be income and assets in India, it's worth having a baseline in mind to compare to, i.e., tax liabilities on the UK income to the UK government.

The typical employed UK resident saves for their retirement in a workplace pension and pays income tax through PAYE. As of the 2024-2025 tax year, they can defer tax on up to £60,000 invested in the pension each financial year. They can also protect up to £20,000 per year of investments from capital gains or dividend income tax in the Individual Savings Account [ISA].

These are generous tax wrappers that incentivise the UK resident to save for the future albeit as long as they keep their assets in the UK. Outside the tax wrappers, there is a paltry Capital Gains tax-free allowance of £3000. Any gains over that will be taxed.

Tax liability in India for NRIs

If you reside outside of India for more than 182 days, then you're a Non-Resident Indian [NRI]

Generally, if you reside outside India for more than 182 days in one Financial Year (April-March), you're treated as a Non-Resident Indian or NRI. There are exceptions which you can read about in ICICI bank - Who qualifies to be an NRI, PIO, or OCI?.

NRIs are not allowed to hold regular savings accounts, only NRO or NRE accounts

The Reserve Bank of India [RBI] is India's central bank and regulatory body responsible for the regulation of the Indian banking system - equivalent to the UK's Bank of England. The Foreign Exchange Management Act [FEMA] is a set of rules regarding foreign money administered by RBI [Vance - FEMA].

FEMA sets out rules that impact Indians resident in other countries or Non-Resident Indians [NRI]. NRIs are not allowed to hold regular savings accounts in India. When you become an NRI, you must convert any existing bank accounts to Non-Resident Ordinary [NRO] accounts. You can also open Non-Resident External [NRE] accounts.

FEMA section 13 says that the penalty for breaking a rule could be:

up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

NRO accounts are intended for domestic funds and NRE account for foreign funds

To invest NRIs need a Demat account linked to a NRE PIS account or a NRO account

To invest, you need a Demat account (an account that holds shares and securities in an electronic format). This could be with your bank itself or a stock broker such as Zerodha. If you decide to use Zerodha, I'd appreciate you using my Zerodha - referral.

Previously, NRIs could only invest in Indian companies via a Portfolio Investment Scheme [PIS] bank account - think of this as a special NRO or NRE account. However, a much simpler non-PIS route was introduced more recently which can be used with a regular NRO account. See Zerodha: What is the difference between a PIS and a NON-PIS account? for more details.

The diagram below shows the money flow between Indian NRE and NRO accounts. Note that tax is deducted at source, i.e., by the bank/broker in either case.

NRI's income in India is taxable in India

Income tax in India is complex as you can imagine. ICICI bank has a good article NRI taxation: Know the income tax rates with some examples. Or you might prefer the more authoritative source - incometax.gov.in.

Key takeaways:

1. You have to pay tax if your level of income is higher than ₹3 lakh.
2. Income tax slabs are the same for residents and NRIs. The total tax liability is the sum of:
   • Income tax depending on your level of income
   • Surcharge - an additional tax levied on your base income tax when your taxable income crosses ₹50 lakh
   • Health and education cess of 4% on the sum of income tax and surcharge
3. However, note that the Tax Deducted at Source (TDS), for example by your bank or stock broker, will be a fixed percentage - higher than your tax liability according to the slab rates. You have to file an Income Tax Return (ITR) if you want to claim back any excess tax paid. More on this in the next section.

You can see how the income tax varies in the graph below.

NRIs may have to submit Income Tax Returns (ITR) in India

If your total annual income in India exceeds ₹3 lakh, then you're mandated to file an Income Tax Return (ITR). Fortunately, if your income only consists of investment income (e.g. dividends/interest) or long-term capital gains where you've already paid TDS based on the special tax provisions for NRIs, then you don't have to file ITR. For more details, see ICICI - When is it mandatory for an NRI to file an ITR in India?.

However, you can file an ITR and opt out of the special tax provisions and pay taxes according to the slab rate. This might be beneficial if you'd pay less tax that way. For example, you'd pay no tax at all if the investment income is less than ₹3 lakh. For more details see ICICI - Understanding Special Tax Provisions for NRIs.

You can also claim reduced tax based on the Double Taxation Avoidance Agreement [DTAA] b/w UK and India. I would not recommend reading the full treaty. However, you can look at the India: Treaty summary and India: Notes. In the table below, we compare the tax rates for:

1. TDS
   • Cleartax - Section 195 of Income Tax Act - TDS Applicability for NRI
   • ICICI - New TDS guidelines
   • Zerodha - How does Zerodha deduct TDS for NRI NON-PIS accounts?
2. India-UK DTAA
   • India: Treaty summary

July 31st is the last date for filing income tax returns in India for NRIs. Have a look at Cleartax's instructions for filing ITR on the Income Tax Portal or use a product like Cleartax to make it easier.

Tax liability in UK for foreign income

Non-domiciled UK residents get special treatment for taxation in the UK (for now)

Your domicile (pronounced dom-uh-sahyl), in essence, is your permanent home. You can work out your domicile using the handy flowcharts in gov.uk - Guidance note for residence, domicile and the remittance basis. Even if you're not domiciled in the UK, you may still be treated as domiciled in the UK for tax purposes, aka deemed domicile.

If you're non-domiciled, you do not pay UK tax on your foreign income or gains if both the following apply:

• they are less than £2,000 in the tax year
• you do not bring them into the UK, for example by transferring them to a UK bank account

Otherwise, you would have to report it in the UK's Self Assessment tax return - unless you claim the remittance basis which is complicated. See gov.uk - Tax on foreign income - 'Non-domiciled' residents for more details.

UK resident's foreign income is taxable in the UK

Assuming you don't qualify for any special treatment as non-domiciled, your foreign income is taxable in the UK. According to gov.uk - Tax on foreign income - Reporting your foreign income, you do not need to file a tax return if:

• your only foreign income is dividends
• your total dividends - including UK dividends - are less than the £500 dividend allowance

Otherwise, you will need to report your foreign income by registering for self-assessment. To be clear, this means you have to declare interest earned on your NRE and NRO accounts as well. The good news is that you can get tax relief on any tax you've already paid in India.

If you do not report it, you may have to pay the undeclared tax and a penalty worth up to double the tax you owe, and could even face prosecution. If you have not previously declared your foreign income, there is a Worldwide Disclosure Facility where you can correct this.

After any tax-free allowance you're eligible for, the tax rate depends on the type of income, and your income tax band. Suprisingly, Indian funds are classed as non-reporting funds according to HS265 Offshore funds and therefore any profits on selling them are taxed as income, not capital gains! For a higher rate tax payer:

• Interest: 40% (taxed as income)
• Dividends: 33.75%
• Capital gains on stocks: 20%
• Capital gains on non-reporting funds: 40% (taxed as income)

The deadline for submitting an online tax return is 31st January. However, if you have not done so before, you also have to register for self-assessment by 5th October.

Transferring money b/w India and the UK

Be aware of currency risk

Currently, 1 GBP = 107.63 INR having increased by about 26% in just the last 5 years. You can see in the chart below that the Rupee has been declining against the pound historically. I have no idea what's going to happen in the future, and you should not believe anyone who tells you they do. Regardless of whether you choose to move assets to India, currency risk is something you should be aware of when you have a vested interest in more than one currency.

Transfer from UK to India is cheap and easy

There is no tax liability either in the UK or India for sending money from the UK to India. I usually choose to send money to my NRE bank account so that I can avoid taxes on any interest earned as well.

However, take care when you choose the bank/company to do the transfer. Some banks promise low fees, but unscrupulously give you a bad exchange rate, i.e. worse than the Google rate aka the mid-market rate.

I have always used Wise which has a nice UI and they only take a very small cut (£5.69 fee for £1000 at the time of writing). I have never had any problems with Wise and will probably trust them with any future transfers for the foreseeable future. I'd appreciate it if you use my Wise - referral link to sign up.

A newcomer on the block that I heard about recently is Vance (£3 fee for £1000 at the time of writing). I have not used it to make any transfers yet. I'd appreciate it if you use my Vance - referral with referral code M0UCHI link to sign up.

Transfer from India to the UK is more expensive and difficult

Transfer abroad from NRE account via bank

Your bank will have a facility for repatriation of funds and this is the only way for you to transfer money abroad from a NRE account. For example, you cannot use Wise to transfer abroad from NRE accounts as per Wise - Guide to INR transfers. This means that your bank may charge fees or provide a bad exchange rate. All you can do is find a bank that offers the best rates.

Transfer abroad from NRO account involves more process

Transfer abroad from NRO account involves more process, but it is still possible. Current income (e.g. rent, dividends, interest) are freely repatriable. Capital funds are subject to a USD 1 million limit and require tax compliance documentation. See ICICI Bank - Decoding NRE, NRO and FCNR accounts for NRIs for more info.

Residents may need to pay 20% TCS on outward remittance but can claim it back in ITR

Your family who are Indian residents may want to gift you money. In this case, they can transfer it to your UK bank account via Wise. There is no gift/inheritance tax liable to the UK in this case as per gov.uk - How Inheritance Tax works: thresholds, rules and allowances.

However, they may need to pay Tax Collected at Source (TCS) to the Indian government:

If you've sent over 700,000 INR in a financial year, we'll charge a 20% fee on the amount over the limit as Tax Collected at Source (TCS) for all purpose codes except medical and education expenses - Wise - Guide to INR transfers

TCS is not an additional tax that increases your tax liability for a financial year. The sender can claim a credit for the TCS amount while filing the income tax return and get a refund if they have paid more tax than their tax liability for the financial year (similarly to TDS). TCS was introduced to combat tax evasion, i.e., to ensure that tax has been paid on any money being sent abroad [cleartax - Tax Collected at Source (TCS) – Rates, Payment, and Exemption].

Do your own research and consult an advisor if appropriate

I can't stress this enough - please do your own research and use this article merely as a starting point. Here are some places you could go to for further help:

• UK
  • HMRC customer forums: Online forum where you can get answers from HMRC. They do seem to dodge some of the harder questions and point to a document or website though.
  • Contact HMRC directly
  • r/UKPersonalFinance: Online forum of people with an interest in UK personal finance
• India
  • r/nri: Online forum dedicated to NRI matters
  • r/indiatax: Online forum dedicated to tax in India

You could also hire an advisor or accountant, especially if you've got a lot of money at stake. Take care when selecting an accountant. Refer to gov.uk - How to choose a tax agent and make sure your advisor is qualified, e.g., is a Chartered Tax Advisor [CTA]. In India, you can verify that your accountant is chartered via the Institute of Chartered Accountants of India: Trace a Member.

Conclusion

For most people, investing in a UK ISA/Pension means no CGT and no tax filing requirements. Transferring assets to India would require paying taxes on interest/gains in both India and the UK, as well as taking on the tax filing burden in both countries. Furthermore, if at any point, you wanted to transfer money out of India, that is also cumbersome. In my experience, Indian banks and brokers are also much more difficult to deal with than their UK counterparts. As far as I'm aware, there's no particular benefit to investing from within India to counterweigh all of the negatives, unless you are keen to invest in shares of specific Indian companies.

If you don't already have assets in India, it feels like a no-brainer to keep them in the UK - at least as long as you are a UK resident. You could send just enough money to India to cover holiday expenses or family commitments there.

However, if you already have assets in India or are gifted/inherit assets in India, you'd then need to assess whether it's worth transferring them to the UK or keeping it in India. This is not something I have covered in my article, but if any of you have done such an assessment, I'd love to hear about your experience.

This was an extremely challenging topic to write about. I would appreciate your feedback and any corrections in the comments section below. Please also share your experience or investigations of this topic.