Can I claim tax credits in UK if I have Indian foreign income?

To claim tax credit for foreign Indian income in the UK, you need to:

1. Report the foreign income on your UK tax return, as part of your worldwide income.

2. Check if the Indian income has already been taxed in India and if so, whether the UK has a double taxation agreement with India to avoid paying tax twice on the same income.

3. If the income has already been taxed in India and there is a double taxation agreement in place, you may be able to claim a tax credit for the tax paid in India against the UK tax payable on the same income.

4. You need to provide evidence of the tax paid in India, such as a tax assessment or certificate of residency.

5. Submit a claim for the tax credit using form R43, which is available on the HM Revenue and Customs (HMRC) website.

Here is a worked example of claiming a tax credit for foreign income:

Suppose, you earned INR 500,000 from Indian sources in the financial year 2021-2022 and the Indian tax authority taxed INR 100,000 on that income. You also have other taxable income of £50,000 in the UK in the same financial year. The UK tax payable on £50,000 at the basic rate of 20% is £10,000.

Since there is a double taxation agreement between India and the UK, you can claim a tax credit for the tax paid in India against the UK tax payable on the same income. To do this:

Report the Indian income of INR 500,000 on your UK tax return as part of your worldwide income.

Convert the Indian income from INR to GBP using the exchange rate applicable for the financial year in which the income was earned.

Calculate the UK tax payable on the foreign income using the UK tax rates. Suppose the foreign income converted to £5,000 and the UK tax payable on it is £1,000 (at 20% rate).

Subtract the tax already paid in India (INR 100,000 or £1,000) from the UK tax payable on the same income (£1,000).

The result is the tax credit you can claim, which in this case is £0.

Submit a claim for the tax credit using form R43, along with the evidence of the tax paid in India (tax assessment or certificate of residency).

Note: This is a simplified example for illustration purposes only and does not take into account any other factors that may affect your tax liability. It’s always recommended to consult a tax professional or HMRC for specific and accurate information on your tax position.