Returning to India While Keeping a UK Business or Side Income – Rules You Must Know

Last year, a WhatsApp community member from Birmingham called me in a panic. He had returned to India six months earlier but was still invoicing his UK clients. 

His accountant had just told him he might owe taxes in both countries. Plus, he needed GST registration.

"I thought my UK income stays with the UK," he said.

It doesn't work that way. And he's not alone in this confusion.

Thousands of UK NRIs return to India each year while keeping their consulting gigs, freelance projects, or small businesses running. The income keeps flowing in pounds. But the tax rules change dramatically the moment you step off that flight.

This guide covers everything you need to know. From RNOR status benefits to GST registration, from UK-India DTAA claims to FEMA compliance. Consider this your complete compliance playbook.

Your Tax Status Changes the Day You Return

Before we discuss UK income, you need to understand what happens to your tax residency.

India uses two separate laws to determine your status: the Income Tax Act and FEMA (Foreign Exchange Management Act).

Under the Income Tax Act, you become a Resident if you spend 182 days or more in India during a financial year. Once resident, your status can be:

• Resident but Not Ordinarily Resident (RNOR) – Only Indian income is taxable
• Resident and Ordinarily Resident (ROR) – Global income is taxable

Under FEMA, you become a resident the moment you return to India with the intention to stay permanently. This affects your bank accounts immediately.

👉 Tip: Use Belong's Residential Status Calculator to determine your exact status for the current financial year.

The RNOR Shield: Your 2-3 Year Tax Advantage

Here's the good news. If you've been abroad for several years, you likely qualify for RNOR status.

You're RNOR if you meet either condition:

Why RNOR matters for your UK income:

As an RNOR, only income earned or received in India is taxable. Foreign income stays tax-free in India – with one crucial exception.

Income from a business controlled or set up in India is taxable even for RNORs.

This is where most returning NRIs get caught.

The Critical Question: Where Is Your Business "Controlled"?

The tax treatment of your UK income depends entirely on where your business is controlled from.

Scenario 1: You run your UK business from India

If you're sitting in Mumbai, emailing UK clients, delivering services from your laptop, and making business decisions from India – your business is controlled from India.

Result: Your UK business income is taxable in India, even during RNOR years.

Scenario 2: Your UK business operates independently

If you have a UK-registered company with local directors, UK bank accounts, and the business operates independently of your location – you may have a case for foreign income.

Result: Dividend income from the UK company may remain tax-free during RNOR period (if received outside India).

👉 Tip: The key factor is where business decisions are made. If you're the sole decision-maker and you're in India, the business is controlled from India.

How Different UK Income Types Are Taxed

Let me break this down by income type:

*UK State Pension and government pensions have specific DTAA rules.

What Counts as "Work Done from India"?

This is where the confusion begins. Let me give you clear examples.

Taxable in India (even during RNOR):

• You write code for a UK client while sitting in Bangalore
• You provide consulting calls to UK businesses from your Mumbai apartment
• You manage a UK e-commerce store from Chennai
• You create content for UK publishers while living in India

Potentially tax-free during RNOR:

• Passive income from a UK property you don't actively manage
• Dividends from UK shares (not from a company you control)
• Interest from UK bank accounts
• Pension from UK employer (subject to DTAA)

The principle is simple: If you're physically in India and doing the work, the income arises in India.

UK-India DTAA: Avoiding Double Taxation

The Double Taxation Avoidance Agreement between India and UK protects you from paying tax twice on the same income.

Key DTAA provisions for business income:

How to claim DTAA benefits:

1. Obtain a Tax Residency Certificate (TRC) from HMRC if claiming UK residence
2. File Form 10F on the Indian income tax portal
3. Submit a self-declaration of non-residency status
4. Provide PAN card copy

The foreign tax credit route:

If you've paid tax on your UK income in the UK, you can claim credit for this tax in India. File Form 67 before your ITR filing deadline to claim this credit.

👉 Tip: DTAA doesn't eliminate tax – it ensures you don't pay twice. Plan which country gets first taxing rights based on your specific situation.

GST on Services to UK Clients: The Zero-Rated Route

Here's something most returning NRIs don't realize: You may need GST registration even for foreign income.

When GST applies:

• Your aggregate turnover from all sources exceeds ₹20 lakhs per year
• You want to claim input tax credits on business expenses

The good news: Export of services is zero-rated

Under Section 16 of the IGST Act, services provided to foreign clients qualify as "export of services" when all five conditions are met:

1. You (the supplier) are located in India
2. Your client is located outside India
3. The place of supply is outside India
4. Payment is received in convertible foreign exchange
5. You and the client are not the same entity

Result: No GST on your invoice. Plus, you can claim refunds on input tax credits.

How to export services without paying GST:

File a Letter of Undertaking (LUT) using Form GST RFD-11 on the GST portal. This allows you to issue zero-rated invoices without paying IGST upfront.

LUT filing process:

1. Log in to the GST portal
2. Navigate to Services → User Services → Furnish LUT
3. Select the financial year
4. Provide details of two independent witnesses
5. Sign with DSC or EVC

The LUT is valid for one financial year. Renew it every April.

👉 Tip: Maintain FIRC (Foreign Inward Remittance Certificate) or e-FIRA for every payment received. This is your proof of export.

FEMA Compliance: Managing Your Money

FEMA rules change the moment you return to India with the intention to stay.

Immediate actions required:

The RFC Account: Your Foreign Currency Lifeline

Open a Resident Foreign Currency (RFC) account immediately upon return. Benefits include:

• Hold foreign currency without forced INR conversion
• Tax-free interest during RNOR period
• Freely repatriable if you move abroad again
• No minimum balance requirements

Receiving UK income after return:

You can receive foreign income in:

• Your UK bank account (declare it in ITR)
• Your RFC account in India
• Your regular resident account (converted to INR)

There's no limit on receiving current income (business/professional income) from abroad. Just ensure proper documentation and tax compliance.

UK Tax Obligations: What You Still Owe HMRC

Leaving the UK doesn't end your UK tax obligations immediately.

You may still owe UK tax if:

• You have UK-source income (rental, pension, dividends)
• You're considered UK tax resident under the Statutory Residence Test
• You have UK assets generating capital gains

Self Assessment requirements:

Even after leaving, you may need to file a UK Self Assessment return for:

• The tax year you left (split-year treatment may apply)
• Any ongoing UK income sources
• Final pension withdrawals

National Insurance contributions:

If you're self-employed and serving UK clients, you may need to continue Class 2 NI contributions for up to two years. This protects your UK State Pension entitlement.

👉 Tip: Consider whether you have 10 qualifying years for UK State Pension. If you're close, the voluntary NI contributions (around £3.45/week) could be worth it.

UK Non-Dom Changes: What Happened in April 2025

If you were using the UK's remittance basis as a non-dom, major changes came into effect in April 2025.

The old rule (before April 2025): Non-doms could avoid UK tax on foreign income by not remitting it to the UK.

The new rule: UK tax residents are now taxed on worldwide income regardless of remittance.

What this means for you:

If you're still UK tax resident (perhaps planning to return), your Indian investments may now face UK tax. The Temporary Repatriation Facility (TRF) offers reduced rates to bring previously untaxed funds into the UK.

For most NRIs returning to India permanently, this change makes India the more attractive tax residence – especially during RNOR years when foreign income remains tax-free.

Year-by-Year Compliance Timeline

Here's what to do at each stage:

Before you leave UK:

• Inform HMRC of your departure date
• Close or maintain UK bank accounts (declare in ITR)
• Consider withdrawing from ISAs (tax-free in UK, check India treatment)
• Obtain your UK tax residency certificate if needed

Year 1 (RNOR status):

• Convert NRE/NRO accounts within 30 days
• Open RFC account for foreign currency
• Register for GST if turnover exceeds ₹20 lakhs
• File LUT for zero-rated exports
• Maintain FIRCs for all foreign payments
• File ITR-3 (for business income) by July 31

Year 2-3 (RNOR continues):

• Maximize foreign income realization during RNOR
• Consider selling UK investments while gains are tax-free in India
• Build up Indian investment portfolio
• Plan for transition to ROR status

Year 3+ (ROR status):

• Global income becomes taxable in India
• Claim DTAA benefits on UK income
• Report all foreign assets in Schedule FA
• File Form 67 for foreign tax credit

Case Study: Priya's UK Consulting Practice

Priya moved from London to Bangalore in May 2024 after 12 years in the UK. She continues consulting for three UK clients.

Her situation:

• UK consulting income: £60,000/year (~₹63 lakhs)
• Qualifies for RNOR (abroad for 9+ years)
• Works from India for UK clients

Tax treatment:

Since Priya performs her consulting services from India, this income is taxable in India even during RNOR. The work arises in India.

Her compliance steps:

1. Registered for GST (turnover above ₹20 lakhs)
2. Filed LUT for zero-rated export of services
3. Opened RFC account to receive GBP payments
4. Files GSTR-1 and GSTR-3B monthly
5. Will file ITR-3 declaring business income
6. Uses presumptive taxation under Section 44ADA (50% deemed profit)

Tax calculation:

By using presumptive taxation, Priya avoids maintaining detailed books while keeping her tax rate reasonable.

Common Mistakes to Avoid

Mistake 1: Assuming RNOR protects all foreign income

It doesn't. Income from services rendered in India is taxable regardless of RNOR status.

Mistake 2: Not registering for GST

If you're invoicing foreign clients and your turnover exceeds ₹20 lakhs, GST registration is mandatory. The LUT route keeps your exports zero-rated.

Mistake 3: Delayed NRE account conversion

FEMA requires prompt conversion of NRI accounts after status change. Violations can attract penalties.

Mistake 4: Not maintaining FIRCs

Without proper documentation (FIRC/e-FIRA) for foreign payments, you cannot prove export of services for GST purposes.

Mistake 5: Forgetting UK tax obligations

You may still owe UK tax on UK-source income. Don't assume leaving means zero UK liability.

Mistake 6: Missing Form 67 deadline

To claim foreign tax credit, Form 67 must be filed before your ITR filing deadline. Miss it and you lose the credit.

5 Smart Strategies for UK Returnees with Foreign Income

Strategy 1: Structure as Export of Services

Register for GST, file LUT, and maintain all export documentation. This keeps your GST liability at zero while allowing input credit claims.

Strategy 2: Use Presumptive Taxation

If your gross receipts are under ₹75 lakhs (and cash receipts under 5%), opt for Section 44ADA. You pay tax on just 50% of receipts with no books to maintain.

Strategy 3: Maximize RNOR Period

During RNOR, liquidate UK investments whose gains would be taxable as ROR. Reinvest in India for better returns – compare rates using Belong's NRI FD Comparison Tool.

Strategy 4: Open RFC Account Early

Park your foreign currency in RFC to maintain flexibility. Interest is tax-free during RNOR, and funds remain repatriable.

Strategy 5: Consider GIFT City Investments

GIFT City USD fixed deposits offer tax-free interest and protect against rupee depreciation. A smart option for UK returnees with significant foreign savings.

Tools and Resources You Need

Your Next Steps

Returning to India while keeping your UK income stream requires careful planning. Here's your action checklist:

Determine your residential status using our calculator

Understand if your UK income is taxable in India

Register for GST if turnover exceeds ₹20 lakhs

File LUT for zero-rated exports

Convert NRI bank accounts to RFC/Resident accounts

Maintain FIRCs for all foreign payments

File ITR-3 with proper disclosure of foreign income

Claim DTAA benefits using Form 67

The rules are complex, but they're navigable. Thousands of UK returnees manage compliant businesses serving foreign clients. With the right structure, you can minimize taxes while staying fully compliant.

Join NRIs Planning Their Return

Questions about your specific situation? Join our WhatsApp community where NRIs discuss everything from tax planning to investment strategies.

Join Belong's NRI WhatsApp Community

And if you're exploring tax-efficient investment options in India, download the Belong app to discover GIFT City products designed specifically for global Indians.

Sources:

• Income Tax Department – NRI Taxation
• ClearTax – India-UK DTAA
• GST Portal – LUT Filing
• RBI – FEMA Guidelines
• GOV.UK – India Tax Treaties

Disclaimer: This article is for informational purposes only and should not be considered tax or legal advice. Tax laws are complex and change frequently. Please consult with a qualified Chartered Accountant or tax professional for advice specific to your situation.