Keir Starmer and Narendra Modi met at Chequers, the British leader's official country residence outside London, where the UK and Indian trade ministers, Jonathan Reynolds and Piyush Goyal, formally signed the agreement.
Starmer said it was "the biggest and most economically significant trade deal" Britain has made since leaving the European Union in 2020.
Modi said it was "a historic day in our bilateral relations."
Alongside the agreement, the two countries announced almost STG6 billion ($A12 billion) in trade and investment deals in areas including AI, aerospace and dairy products, and pledged to work more closely together in areas such as defence, migration, climate and health.
The trade agreement between India and Britain, the world's fifth- and sixth-largest economies, was announced in May, more than three years after negotiations started, and stalled, under Britain's previous Conservative government.
The UK government said the deal will reduce India's average tariff on British goods from 15 per cent to three per cent. Import taxes on whisky and gin will be halved from 150 per cent to 75 per cent before falling to 40 per cent by year 10 of the deal. Automotive tariffs will fall from over 100 per cent to 10 per cent under a quota.
Britain said the deal is expected to increase bilateral trade by STG25.5 billion annually from 2040 and add almost STG5 billion a year to the British economy.
India's Trade Ministry said in May that 99 per cent of Indian exports will face no import duty under the deal, which applies to products including clothes, shoes and food.
Formal talks began in 2022 on a free trade agreement that then-Prime Minister Boris Johnson hailed as a key goal after Britain left the EU. Johnson famously promised to have a deal done by the Diwali holiday in October of that year.
The two countries held 13 rounds of negotiations without a breakthrough before talks were suspended while both nations held general elections in 2024.
Almost two million people in the UK have roots in India, where Britain was the colonial power until independence in 1947.
Starmer said Britain and India "have unique bonds of history, of family and of culture, and we want to strengthen our relationship further, so that it is even more ambitious, modern and focused on the long term."
Speaking as England and India face off in a Test cricket series, Modi sad the sport was "a great metaphor for our partnership."
"There may be a swing and a miss at times but we always play with a straight bat," he said. "We are committed to building a high-scoring, solid partnership."
with Reuters
