India–United Kingdom tax treaty — rates, PE and MLI

The rates, at a glance

Every figure below is taken from the article named beside it, not from a rates table. Read the condition in the same row before you use the rate — in this treaty the condition is usually the whole answer.

Income	Rate	The condition attached to it	Article
Dividends	10 per cent of the gross amount — Art. 11(2)(b), the residual rate for all cases other than 11(2)(a)	Not a shareholding threshold. Art. 11 as replaced by the 2012 Protocol contains no participation threshold at all. The 15 per cent rate is the higher rate and applies where the dividends are paid out of income…	Article 11, paragraph 2
Interest	15 per cent of the gross amount — Art. 12(2)	Art. 12(3)(a): a reduced 10 per cent (not an exemption) where the interest is paid to a bank carrying on a bona fide banking business which is a resident of the other State and is the beneficial owner. Art…	Article 12, paragraph 2, 3 and 4
Royalties	15 per cent of the gross amount for royalties within Art. 13(3)(a) — intangibles: copyright, patent, trade mark, design or model, plan, secret formula or process, information concerning industrial, commercial or scientific experience. This is the residual rate under Art. 13(2)(a)(ii) for 'subsequent years'; the first-five-years rates in 13(2)(a)(i) (15 per cent where the payer is the Government or a political subdivision, 20 per cent otherwise) are long spent. 10 per cent for royalties within Art. 13(3)(b) — use of, or right to use, industrial, commercial or scientific equipment — under Art. 13(2)(b).	Equipment royalties are carved out where the income is derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic (Art. 13(3)(b)). Art. 13(9) denies the…	Article 13, paragraph 2 read with 3
Fees for technical services	15 per cent for FTS within Art. 13(4)(a) and 13(4)(c) — Art. 13(2)(a)(ii); 10 per cent for FTS within Art. 13(4)(b) — Art. 13(2)(b). The make-available limb sits in 4(c), so make-available FTS is taxed at 15 per cent, not 10.	Art. 13(4) defines 'fees for technical services' as payments for rendering any technical or consultancy service (including the provision of services of technical or other personnel) which either (a) are…	Article 13, paragraph 4 (make-available at 4(c)); exclusions at 5

Status

In force	26 October 1993 (Convention signed at New Delhi 25 January 1993; entered into force on the later notification under Art. 30). The 2012 amending Protocol (signed at London 30 October 2012) entered into force 27 December 2013. The MLI entered into force for India 1 October 2019 and for the UK 1 October 2018; its provisions have effect for Indian withholding taxes where the triggering event occurs on or after 1 April 2020, for UK withholding taxes from 1 January 2020, for other Indian taxes for taxable periods beginning on or after 1 April 2020, and in the UK from 1 April 2020 (corporation tax) and 6 April 2020 (income tax and capital gains tax).
Given effect by	G.S.R. 91(E), dated 11-2-1994, under s.90 of the Income-tax Act 1961.
Modified by the MLI	Yes — a synthesised text exists. Prepared jointly by the competent authorities of India and the UK, on the basis of India's MLI position deposited on ratification 25 June 2019 and the UK's deposited 29 June 2018. The document states it covers the Convention signed 25 January 1993 together with the Protocol signed 30 October 2012. No separate publication date is printed.
Principal purpose test	Present. MLI Art. 7(1) (Prevention of Treaty Abuse — principal purposes test provision) replaces Art. 28C: notwithstanding any provision of the Convention, a benefit shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting the benefit in those circumstances would be in accordance with the object and purpose of the relevant provisions of the Convention. The MLI Art. 6(1) preamble is also inserted. Note the PPT carries the object-and-purpose escape that Art. 28C did not.

Dividends

Rate	10 per cent of the gross amount — Art. 11(2)(b), the residual rate for all cases other than 11(2)(a)
Lower rate on a qualifying holding	15 per cent of the gross amount — Art. 11(2)(a)
The holding that unlocks it	Not a shareholding threshold. Art. 11 as replaced by the 2012 Protocol contains no participation threshold at all. The 15 per cent rate is the higher rate and applies where the dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Art. 6 by an investment vehicle which distributes most of that income annually and whose income from such immovable property is exempted from tax — i.e. A reit-type conduit. Everything else takes 10 per cent.
Where this comes from	Article 11, paragraph 2

This is the inverted-structure trap. Practitioners trained on the standard OECD pattern look for a lower rate unlocked by a 10 or 25 per cent shareholding; here there is no such limb, and the 15 per cent figure is a penalty rate for property conduits, not a default. Art. 11(6) is a treaty-level anti-abuse rule: no relief under the Article at all if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights to take advantage of the Article by means of that creation or assignment. The competent authorities are to settle the mode of application of the limitations by mutual agreement (unnumbered sentence after 11(2)(b)). Art. 11(4) disapplies paras 1 and 2 where the holding is effectively connected with a PE.

Interest

Rate	15 per cent of the gross amount — Art. 12(2)
Exemptions	Art. 12(3)(a): a reduced 10 per cent (not an exemption) where the interest is paid to a bank carrying on a bona fide banking business which is a resident of the other State and is the beneficial owner. Art. 12(3)(b): full exemption in the source State where the interest is paid to the Government of one of the Contracting States, a political subdivision or local authority of that State, or the reserve bank of india. Note the asymmetry on the face of the text — the Bank of England is not named; only the rbi is. Art. 12(4)(a): interest arising in India paid to and beneficially owned by a UK resident is exempt in India if paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured, by the UK export credits guarantee department. Art. 12(4)(b): interest arising in the UK paid to and beneficially owned by an Indian resident is exempt in the UK if paid in respect of a loan or credit made, guaranteed or insured by the export credits and guarantee corporation of india and/or the export-import bank of india. Art. 12(4) is expressed to override not only paras (2) and (3) but also Article 7 — so the export-credit exemption survives even where there is a PE.
Where this comes from	Article 12, paragraph 2, 3 and 4

Two further qualifiers that are easy to lose. Art. 12(10) denies the para (2) relief altogether where the beneficial owner both (a) is exempt from tax on such income in his State of residence and (b) sells or contracts to sell the holding from which the interest derives within three months of acquiring it — a cumulative two-limb anti-bond-washing rule. Art. 12(11) denies the whole Article where creation or assignment of the debt-claim had as a main purpose taking advantage of it. Art. 12(6) disapplies paras (1), (2) and (3)(a) — but notably not (3)(b) or (4) — where the debt-claim is effectively connected with a PE or fixed base.

Royalties

Rate	15 per cent of the gross amount for royalties within Art. 13(3)(a) — intangibles: copyright, patent, trade mark, design or model, plan, secret formula or process, information concerning industrial, commercial or scientific experience. This is the residual rate under Art. 13(2)(a)(ii) for 'subsequent years'; the first-five-years rates in 13(2)(a)(i) (15 per cent where the payer is the Government or a political subdivision, 20 per cent otherwise) are long spent. 10 per cent for royalties within Art. 13(3)(b) — use of, or right to use, industrial, commercial or scientific equipment — under Art. 13(2)(b).
Where this comes from	Article 13, paragraph 2 read with 3

Rate

15 per cent of the gross amount for royalties within Art. 13(3)(a) — intangibles: copyright, patent, trade mark, design or model, plan, secret formula or process, information concerning industrial, commercial or scientific experience. This is the residual rate under Art. 13(2)(a)(ii) for 'subsequent years'; the first-five-years rates in 13(2)(a)(i) (15 per cent where the payer is the Government or a political subdivision, 20 per cent otherwise) are long spent. 10 per cent for royalties within Art. 13(3)(b) — use of, or right to use, industrial, commercial or scientific equipment — under Art. 13(2)(b).

Where this comes from

Article 13, paragraph 2 read with 3

Equipment royalties are carved out where the income is derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic (Art. 13(3)(b)). Art. 13(9) denies the whole Article where creation or assignment of the rights had as a main purpose taking advantage of it. The 15 per cent treaty ceiling is now below the Indian domestic gross rate for royalties and FTS paid to non-residents, so the treaty is doing real work here — the opposite of the position between 2015 and 2023.

Fees for technical services

Rate	15 per cent for FTS within Art. 13(4)(a) and 13(4)(c) — Art. 13(2)(a)(ii); 10 per cent for FTS within Art. 13(4)(b) — Art. 13(2)(b). The make-available limb sits in 4(c), so make-available FTS is taxed at 15 per cent, not 10.
Make-available requirement	Yes
Where this comes from	Article 13, paragraph 4 (make-available at 4(c)); exclusions at 5

Art. 13(4) defines 'fees for technical services' as payments for rendering any technical or consultancy service (including the provision of services of technical or other personnel) which either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in 3(a) is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in 3(b) is received; 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. Note the UK article has three limbs where the USA article has two — the UK splits the ancillary-and-subsidiary test across intangibles (a) and equipment (b), and the make-available test is the third, (c). The whole of para (4) is expressed to be 'subject to paragraph (5)'. Art. 13(5) then excludes five categories: (a) services ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than property described in 3(a); (b) services ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) teaching in or by educational institutions; (d) services for the private use of the individual or individuals making the payment (the UK says 'private', the USA says 'personal'); and (e) payments to an employee of the payer, or to any individual or partnership for professional services as defined in Art. 15 (the UK says 'partnership', the USA says 'firm of individuals (other than a company)').

Capital gains on shares

Treatment	No treaty relief. Art. 14 is a single sentence: except as provided in Art. 8 (Air Transport) and Art. 9 (Shipping), each Contracting State may tax capital gains in accordance with the provisions of its domestic law. There is no shares limb, no participation threshold, no immovable-property-company rule and no residence-only allocation.
Conditions	Only the Art. 8 and Art. 9 carve-outs.
Where this comes from	Article 14, paragraph 1 (the article has a single paragraph)

Permanent establishment

Construction or installation PE	More than six months for a building site or construction, installation or assembly project, or supervisory activities in connection therewith — Art. 5(2)(j). The same sub-paragraph carries a second, independent limb that is frequently missed: a project or supervisory activity which is incidental to the sale of machinery or equipment and continues for a period not exceeding six months is still a PE if the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment. So a two-month supervisory engagement can be a PE on the value test alone.
Service PE	More than 90 days in any twelve-month period for the furnishing of services including managerial services (Art. 5(2)(k)(i)) — but the threshold drops to more than 30 days in any twelve-month period where the services are performed for an associated enterprise within Art. 10(1) (Art. 5(2)(k)(ii)). Services taxable under Art. 13 (Royalties and FTS) are excluded from the service PE limb.
Agency PE	True
Where this comes from	Article 5

There is also a deemed PE proviso at the end of Art. 5(2): an enterprise is deemed to have a PE and to carry on business through it if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of, mineral oils in that State — with no time threshold at all. Agency PE at Art. 5(4) has three limbs: (a) habitual exercise of authority to negotiate and enter into contracts (note 'negotiate and', wider than the OECD 'conclude'), unless limited to purchasing; (b) habitual maintenance of a stock from which the agent regularly delivers — with no additional-activities requirement, unlike the USA treaty; (c) habitually securing orders wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises under common control. Art. 5(5) independent-agent relief is lost where activities are carried out wholly or almost wholly for the enterprise or its commonly controlled group. Art. 5(7) defines 'control' as ability to control the company's affairs through direct or indirect holding of the greater part of issued share capital or voting power. The 1993 Protocol/Exchange of Notes of 25 January 1993 supplies three counting rules for the six-month test in 5(2)(j): take no account of time previously spent by employees on unconnected sites or projects; apply the test separately to each unconnected site or project and to each group of connected sites or projects; and treat a building site as a single site even if several contracts were entered into, provided it forms a coherent whole commercially and geographically. Art. 5(3) is now modified by MLI Art. 13(4) (anti-fragmentation) per the synthesised text.

Anti-abuse: limitation of benefits, and the MLI

LOB	Article 28C (Limitation of Benefits), inserted by Art. IX of the 2012 Protocol with effect from 27 December 2013: benefits are denied to a resident, or in respect of any transaction undertaken by a resident, if the main purpose or one of the main purposes of the creation or existence of that resident, or of the transaction, was to obtain benefits under the Convention; para 2 requires the denying State's competent authority to notify the other. Important: per the synthesised text, MLI Art. 7(1) replaces Article 28C. In the treaty as modified, the operative anti-abuse rule is the PPT, not the 2013 LOB.
PPT	Present. MLI Art. 7(1) (Prevention of Treaty Abuse — principal purposes test provision) replaces Art. 28C: notwithstanding any provision of the Convention, a benefit shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting the benefit in those circumstances would be in accordance with the object and purpose of the relevant provisions of the Convention. The MLI Art. 6(1) preamble is also inserted. Note the PPT carries the object-and-purpose escape that Art. 28C did not.
Subject to tax	No general subject-to-tax clause. Art. 4(1)(a) excludes from residence any person liable to tax only on source income in that State; Art. 4(1)(b) restricts partnership, estate and trust residence to the extent the income is subject to tax there as the income of a resident, in its own hands or those of its partners or beneficiaries. In addition there are three article-specific main-purpose tests — Art. 11(6) (dividends), Art. 12(11) (interest) and Art. 13(9) (royalties and FTS) — each aimed at creation or assignment of the underlying right, and each surviving alongside the PPT.
Where this comes from	Article 28C as replaced by MLI Art. 7(1); plus 11(6), 12(11), 13(9)

Five MLI provisions are boxed into the text: (1) MLI Art. 6(1) — the anti-treaty-shopping preamble is inserted into the preamble; (2) MLI Art. 11(1) — saving clause preserving each State's right to tax its own residents, superseding the Convention, subject to listed benefits (Art. 10(2) and Arts. 19, 21, 22, 24, 26, 27 and 29); (3) MLI Art. 4(1) — replaces Art. 4(3): the old place-of-effective-management tie-breaker for dual-resident non-individuals is gone, replaced by a competent-authority mutual agreement test having regard to place of effective management, place of incorporation and other relevant factors, with no relief at all in the absence of agreement except as the competent authorities may agree; (4) MLI Art. 13(4) — the anti-fragmentation rule, applied to Art. 5(3), disapplying the preparatory/auxiliary exemptions where the same or a closely related enterprise carries on complementary functions forming a cohesive business operation; and (5) MLI Art. 15(1) — the definition of a person closely related to an enterprise (>50 per cent beneficial interest, or >50 per cent of aggregate vote and value of shares). Most consequentially, MLI Art. 7(1) replaces Article 28C. The 2013-vintage LOB is therefore no longer the operative anti-abuse rule; the standard PPT is.

The protocols, in order

A treaty read without its protocols is a wrong answer.

Notification No. 10/2014 [F. No. 505/3/1986-ftd-I], dated 10-2-2014 — gives effect to the Protocol signed at London on 30 October 2012, with effect from 27 December 2013 (the date of the later notification under Art. X of that Protocol). Substantively it replaced Art. 3(1)(f) ('person'), deleted Art. 3(2), replaced Art. 4(1) (residence), replaced Art. 11 (Dividends) entirely, deleted Art. 25 (Partnerships) without renumbering, replaced Art. 28 (Exchange of Information), and inserted new Arts. 28A (Tax Examinations Abroad), 28B (Assistance in the Collection of Taxes) and 28C (Limitation of Benefits). Art. X(2) gives Arts. VI, VII and VIII (exchange of information, examinations abroad, collection assistance) retrospective reach over matters pre-dating entry into force.
The 1993 Protocol/Exchange of Notes of 25 January 1993 is part of the original instrument, not a later amendment.
The MLI (signed by both States 7 June 2017) modifies the Convention; see synthesised_text.

The words themselves

Quoted from the treaty as notified.

make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.

Article 13, paragraph 4(c) of the treaty as notified.

15 per cent of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax;

Article 11, paragraph 2(a) of the treaty as notified.

where such site, project or supervisory activity continues for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment

Article 5, paragraph 2(j) of the treaty as notified.

services are performed within that State for an enterprise within the meaning of paragraph (1) of Article 10 (Associated enterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period.

Article 5, paragraph 2(k)(ii) of the treaty as notified.

where the interest is paid to the Government of one of the Contracting States or a political subdivision or local authority of that State or the Reserve Bank of India, it shall not be subject to tax by the State in which it arises.

Article 12, paragraph 3(b) of the treaty as notified.

Notwithstanding any provisions of [this Convention], a benefit under [this Convention] shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of [this Convention].

Article MLI Art. 7(1), replacing Convention Art. 28C, paragraph 1 of the treaty as notified.

What to watch

The dividend article is upside down relative to the standard model. There is no shareholding threshold. 10 per cent is the default and 15 per cent is the penalty rate for property-income investment vehicles. Any note that says 'India-UK dividends: 15 per cent, reduced to 10 per cent on a holding of X' is wrong on both limbs.
The MLI has done something material here that a reader of the bare treaty will miss twice over. First, Article 28C — the LOB the 2012 Protocol only inserted in 2013 — has been replaced by the MLI PPT. Second, the Art. 4(3) place-of-effective-management tie-breaker for dual-resident companies is gone: MLI Art. 4(1) substitutes a competent-authority process, and if the authorities do not agree the company gets no treaty relief at all.
Art. 5(2)(j) is not simply a six-month test. The second limb catches supervisory or project activity incidental to a sale of machinery or equipment lasting six months or less where the charges exceed 10 per cent of the sale price. Quoting 'six months' without that limb is exactly the truncation-at-the-qualifier failure.
The service PE threshold has two tiers: 90 days generally, 30 days for services to an associated enterprise. Both are 'more than', and both are measured over any twelve-month period, not a fiscal year.
Mineral-oil services and hire of plant and machinery for oil prospecting, extraction or production create a deemed PE with no time threshold at all (proviso to Art. 5(2)).
The FTS make-available limb is 13(4)(c) and it is taxed at 15 per cent, while 13(4)(b) FTS ancillary to equipment enjoyment is taxed at 10 per cent. The rate follows which limb of the definition is engaged, so limb identification is a rate question, not just a taxability question.
Art. 12(3)(b) names the Reserve Bank of India but no UK central bank counterpart. The government/political-subdivision limb is reciprocal; the central-bank limb, on the face of the text, is not.
Art. 12(10) is a cumulative two-limb denial (tax-exempt beneficial owner and sale within three months of acquisition). Either limb alone does not deny relief.
Article 14 gives no capital gains relief at all. There is no shares limb and nothing to grandfather.
Article 25 does not exist. The 2012 Protocol deleted the Partnerships article and expressly did not renumber, so the articles run 24, [gap], 26. A cross-reference to 'Article 25' in older material is a reference to a repealed provision.

What this page does not tell you. Article 7 (Business Profits) including the Art. 7(3) expense restriction interpreted by Protocol para (b), Article 24 (Elimination of Double Taxation) credit mechanics, Article 26 (Non-Discrimination) and Article 27 (map as modified by MLI Art. 16) were not read in full. Whether the MLI brought in Part VI arbitration is not established. The Gazette page reference for G.S.R. 91(E) is not printed, only the number and date; the Introduction carries a footnote marker after '11-2-1994' whose content was not read. No most-favoured-nation clause was found in the 1993 Protocol/Exchange of Notes or in the 2012 amending Protocol, both of which were read in full — but the possibility of an MFN undertaking in a separate instrument not read here is not excluded.

The India–United Kingdom tax treaty