As global mobility increases, it’s common for Indian citizens to work or live in the UK and invest in financial products like Individual Savings Accounts (ISAs). These accounts are popular due to their tax-free returns under UK tax law. However, when individuals return to India or become tax residents in India, the question arises: Are ISA returns still tax-free in India?
The answer, unfortunately, is no.
Let’s explore the complexities of ISA Taxation India, who it applies to, and how NRIs and returning residents can manage compliance with Indian tax regulations.
A UK Individual Savings Account (ISA) allows UK residents to earn tax-free returns on savings or investments, with annual contribution limits (up to £20,000 as of 2025–26). The main types of ISAs include:
While these are tax-efficient for UK residents, they lose their special status once the account holder becomes a resident in India.
India’s tax system does not recognize the ISA’s tax-free structure. The Indian Income Tax Act treats returns from ISAs as regular foreign income or capital gains, depending on the source.
In short, all gains and income from ISAs are taxable in India once you are a tax resident, even though they remain tax-free in the UK.
Your tax liability in India is based on your residential status as defined by the Indian Income Tax Act. If you meet the criteria for being a resident and ordinarily resident (ROR) in India, then your global income is taxable, including UK ISA returns.
Many returning NRIs mistakenly believe that because the ISA is tax-free in the UK, it remains so globally—this is not the case.
India and the UK have a Double Taxation Avoidance Agreement (DTAA). While DTAA can help prevent double taxation in many cases, it does not exempt ISA returns from Indian taxation simply because they are exempt in the UK.
India taxes ISA income as normal foreign income, unless that income is already taxed in the UK—something that doesn’t happen in most ISA cases due to their exempt status.
Hence, no relief is available under DTAA for ISA-related earnings.
If you’re a returning NRI or have become a resident in India, here are your next steps:
As per UK rules, you cannot contribute to ISAs if you are not a UK tax resident. Continuing to do so can cause compliance issues on both sides.
Even though the UK does not tax your ISA earnings, you must report and pay tax on these returns in India. Use the correct ITR form and declare foreign assets under Schedule FA.
If your ISA earnings are now taxable in India, you might consider:
Keep all ISA transaction statements and interest/dividend details ready for Indian tax filing and reporting.
Given the complexity of foreign income reporting, work with a professional who understands UK and Indian tax laws to ensure full compliance.
Ignoring ISA income while filing Indian taxes can lead to:
For high-net-worth NRIs or anyone with significant ISA holdings, this is not a trivial issue—it’s a critical compliance matter.
ISAs are excellent investment tools while you are in the UK. But once your tax base shifts to India, they lose their tax-free charm. It’s essential to stay updated with cross-border tax laws, report income accurately, and make investment decisions that align with your current residency and financial goals.
At Dinesh Aarjav & Associates, we specialise in helping NRIs and returning Indian residents navigate ISA taxation and foreign income reporting with ease. Let our experts guide your cross-border compliance with clarity and confidence.