I have an NRE account in India and a UK bank account here as I am a British Citizen and OCI. As Interest rates in Indian banks are far better than in UK, I plan to have Fixed Deposit in NRE account from the money I transferred from UK account(taxes paid in UK) to my NRE account. Once the FD has matured, Over a period of time I want to get my money back to UK. I understand all interests accumulated will be Taxed here in UK and I would want to pay the taxes incurred with Interest, but if i get the money back into UK account in small installments, how do i breakdown the amount of the interest+amount transferred in these circumstances so that I pay taxes only for the Interest amount.
Taxes are due when earned. Not when you transfer the funds to UK. So even if you never transfer the funds you have to declare in your UK taxes interest every year and pay taxes.
Generally there is relief under DTAA (Dual Tax avoidance agreement) however in this case there is no taxes applicable in India so you have to pay as per UK tax rates.