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Taxation of Interest Income from NRE and FCNR Deposits for UK Residents

NRE and FCNR get tax credit even without paying taxes in India

  1. Double Taxation Avoidance Agreement (DTAA) provides for credit to be given for tax `spared` (i.e. not paid) in India under the provisions of Indian law set out in Article 24 (4)
  • This tax ‘spared’ relief is restricted to a period of 10 years from first exercised – Article 24 (5)
  • Credit for `tax spared’ is limited to the amount of tax which would otherwise have been paid under the terms of the agreement. As per UK India DTAA interest can be taxed maximum @ 15% Article 12 (2). Thus, relief restricted to 15%.
  • DTAA does not mention any certification requirements.
  • Income under sections of Indian Income Tax Act 1961 is mentioned in DTAA:
SectionsType of Income
10(4)Non-Resident (External) Account
10(15) (iv)FCNR Deposits
Other sectionsNot relevant for present scenario

Conclusion:

NRE and FCNR Deposits will get a Foreign Tax Credit Relief for tax which would have been paid in India if NRE/FCNR interest was taxable . This relief is restricted to 15% of gross interest.

Sources:

  1. Double Taxation Relief Manual DT9553
  2. International Manual INTM161270
  3. UK India DTAA Agreement – Synthesized text
  4. Source of Indian Income Tax text
  5. Institute of Chartered Accountants of India – Taxation of Non-residents 2018 version.

Bonus:

  1. Prior to 1st April 2020 dividends distributed in India were subject to Dividend Distribution tax (DDT). Indian residents did not need to pay tax on dividends, but non-residents were at a disadvantage as they could not get credit for DDT.

Now DDT has been abolished, dividend will be taxable in the hands of the shareholders.

2. Interest on Fixed Deposits – interest arises and is taxable each year as it is credited. see Example 2 on SAIM2440

3. Interest Certificate – Your bank can easily provide this certificate for individual tax years. It will make tax computations much easier.

Is Pension a taxable benefit ?

It’s that time of the year when year-end reporting for PAYE is in focus.

Everybody is confused about the yearend tasks, taxable benefits, PAYE settlement agreements.

Due to auto enrolment many of the employers are now paying pension to their staff.

I was confused about whether employer’s contribution towards pension will be a taxable benefit.

No where I have heard that it is the case but it is always good to double check if a doubt comes to your mind.

I started searching – no answers !!!

Finally I came across HMRC guide CWG2 , it clearly states that Pension contributions are NOT to be included PAYE tax or NIC ; refer Chapter 5

March 2021 – Legislation reference 

Employer’s contribution to employee’s registered pension schemes do not count as earnings or taxable benefits under ITEPA 2003, s 308.

Plus, they do not attract employers’ NICs (SI2001/1004, Sch 3)

Budget Highlights for Hospitality Sector

Budget 2021 – Hospitality industry : What you need to know

  1. Furlough Scheme to continue till September 2021:

Employers           will receive 80% of wage. NIC and Pension to be paid by
employer.

                              From July 2021 employers will need to contribute 10%

                              In August and September contribution will increase to 20%.

Employees          No change they continue to get 80% of their wage for hours not
worked. Tronc not included.

  • Self-employed Grants

Fourth grant (Feb to April 2021)                        80% of profits                   Can be claimed in late April

Fifth grant   (May to Sep 2021)                          turnover criteria as below:                         

Turnover fallen.

More than 30% – 80% of the profits ; same like before.

Less than 30%    – 30% of the profits instead of 80% before.

  • National Minimum Wage increases to £8.91 from April 2021.
  • Apprentices – Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.

5.  Local grants to end in March. New Restart grant to be given @£18k per premises.       

6. Recovery Loan Scheme. From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. This replaces Bounce Back loans and CBIL.

7. Business Rates. 100% relief for April to June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

8. VAT. 5% to continue till 30th Sep 2021. Then 12.5% for next 6 months. Full 20% from 1st April 2022.

9. Corporation Tax. From 1st April 2023 main rate at 25%. Companies with profit less than £50k will still be 19%. Taper relief for companies with profits between £50k and £250k.

10. Super Deduction. In case you are feeling brave. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. 

11. Alcohol and fuel duty frozen for another year.

12. Help to Grow. The government will offer a new UK-wide management programme to upskill SMEs in the UK over three years. Over 12 weeks, and 90% subsidised by government.

13. Help to Grow: Digital – The government will launch a new UK-wide scheme in the autumn to help SMEs save time and money by adopting productivity-enhancing software.This will combine a voucher covering up to half of the costs of approved software up to a maximum of £5,000, and free impartial advice, delivered through an online platform.

Death and taxes

What to do when a tax payer dies ?

Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes — Benjamin Franklin, in a letter to Jean-Baptiste Le Roy, 1789

10th August 2020

Step 1
: Use Government’s Tell Us Once (TUO) Service:
Via this service you inform a number of government organisations including HMRC about the death. Please note you will need a lot of information before you use this service. So check there website before calling – click here.


Step 2
: Ascertain whether there was a Will?
Tax affairs of the deceased are handled by the Personal Representatives (PR).In case a Will is present, PRs are called Executors. In its absence they are called Administrators.

Step 3: Use HMRC Bereavement guide.

Step 4: Do PRs need to apply for Probate?
See basic guide here. Probate is not required all cases

Step 5: HMRC will send a tax return within 3 months with instructions. Submission back by post. No action needs to be taken unless the tax return arrives with instructions.

Sources:
1 – ICAEW Website
2 – Citizen Advice
3 – Gov.uk – After a death

18th September 2020

Two Tax returns received from HMRC:

Tax year 2019-20File in 90 days
Period 6th April 2020 till the date of death.File by 31st Oct 2021

Please note these tax returns do not have tax computation sections, HMRC will compute the tax payable and send the bill.

19th January 2021

Please note allowances like Married Couple’s allowance, Marriage Allowance and Blind Person’s Allowance can be transferred from the person who died to the surviving partner in the year of death. Source : Tax Adviser Magazine

Bonus:

Tax Adviser Magazine is a excellent source of information for Tax professional completely free.