Money Control | 21 April 2026
India puts UK BIT on hold over taxation, MFN issues; talks continue with EU, Saudi Arabia
by Adrija Chatterjee
India and the UK have put a proposed bilateral investment treaty (BIT) on the back burner amid disagreements over Britain’s push for the most-favoured-nation status (MFN) and tax concessions even as New Delhi continues negotiations with at least five other partners, including the European Union and Saudi Arabia.
New Delhi is likely to stick to its stance of excluding taxation from bilateral investment treaties as it negotiates such pacts with trading partners, a senior government official said, requesting anonymity.
“The BIT with the UK is not happening because there are some clauses that are a concern for us. One issue that comes up is taxation, and we keep saying we want a complete carve-out of taxation; we can’t touch taxation in BITs, so that becomes a sticking point. Then there is MFN status, which they keep asking for. MFN is a trade concept, so why do we need it in a BIT? Neither side has taken up the issue of the BIT,” the official said.
The pause comes even as both sides signed a free trade agreement (FTA) in July 2025, with the deal expected to come into force around May this year.
Earlier, there were expectations that the BIT and the FTA between India and the UK would be finalised simultaneously or in close succession.
The official added that India is continuing BIT negotiations with several countries, including the European Union, Bahrain and the Maldives, while discussions with Saudi Arabia are progressing with some flexibility on positions.
“FTAs can be concluded faster than BITs, which tend to take longer. The EU also wants to explore some aspects related to taxation and we are still negotiating there. Our broad policy remains that taxation should not be included in BITs,” the official said.
A BIT is a pact between two countries to promote and protect investments by providing assurances such as non-discrimination, protection against expropriation, and access to arbitration.
According to the government, India’s model BIT seeks to balance investor protection with sovereign regulatory powers, while excluding certain sensitive areas such as taxation, subsidies and government procurement to preserve policy space.
India’s reluctance to include taxation in BITs stems from this emphasis on sovereignty, a bid to retain full control over fiscal policy while also avoiding investor claims through arbitration on tax matters.
At the same time, New Delhi also avoids including MFN provisions in investment pacts, as these can allow investors to claim more favourable terms from other treaties, increasing potential liabilities for the host country.
