• Indian Perspective
• Global Perspective

Double Taxation Relief

Unilateral relief may be offered to a tax payer if:

• The person or company has been a resident of India in the previous year.
• The same income must be accrued to and received by the tax payer outside India in the previous year.
• The income should have been taxed in India and in another country with which there is no tax treaty.
• The person or company has paid tax under the laws of the foreign country in question.

Bilateral Relief:

Under Section 90, the Indian government offers protection against double taxation by entering into a DTAA with another country, based on mutually acceptable terms. Such relief may be offered under two methods:

• Exemption method : This ensures complete avoidance of tax overlapping.
• Tax credit method : This provides relief by giving the tax payer a deduction from the tax payable in India.

Agreement with foreign countries or specified territories

90. [(1)] The Central Government may enter into an agreement with the Government of any country outside India-

       [(a)  for the granting of relief in respect of-

       (i)  income on which have been paid both income-tax under this Act and income-tax in that country; or

      (ii)  income-tax chargeable under this Act and under the corres- ponding law in force in that country to promote mutual economic relations, trade and investment, or]

          (b)  for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or

          (c)  for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corres-ponding law in force in that country, or investigation of cases of such evasion or avoidance, or

          (d)  for recovery of income-tax under this Act and under the corres- ponding law in force in that country,

and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.]

[(2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.]

[(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.]

Explanation 1. For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.

Explanation 2. For the purposes of this section, "specified territory" means any area outside India which may be notified14a as such by the Central Government.

Adoption by Central Government of agreement between specified associations for double taxation relief.

90A.  (1) Any specified association in India may enter into an agreement with any specified association in the specified territory outside India and the Central Government may, by notification in the Official Gazette, make such provisions as may be necessary for adopting and implementing such agreement-

          (a)  for the granting of relief in respect of-

       (i)  income on which have been paid both income-tax under this Act and income-tax in any specified territory outside India; or

      (ii)  income-tax chargeable under this Act and under the corres-ponding law in force in that specified territory outside India to promote mutual economic relations, trade and investment, or

          (b)  for the avoidance of double taxation of income under this Act and under the corresponding law in force in that specified territory outside India, or

          (c)  for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corres-ponding law in force in that specified territory outside India, or investigation of cases of such evasion or avoidance, or

          (d)  for recovery of income-tax under this Act and under the corres-ponding law in force in that specified territory outside India.

(2) Where a specified association in India has entered into an agreement with a specified association of any specified territory outside India under sub-section (1) and such agreement has been notified under that sub-section, for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.

Explanation 1.-For the removal of doubts, it is hereby declared that the charge of tax in respect of a company incorporated in the specified territory outside India at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such company.

Explanation 2.-For the purposes of this section, the expressions-

          (a)  "specified association" means any institution, association or body, whether incorporated or not, functioning under any law for the time being in force in India or the laws of the specified territory outside India and which may be notified as such by the Central Government for the purposes of this section;

          (b)  "specified territory" means any area outside India which may be notified as such by the Central Government for the purposes of this section.]

Adoption by Central Government of agreement between specified associations for double taxation relief.

91.    (1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

(2) If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him-

          (a)  of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or

          (b)  of a sum calculated on that income at the Indian rate of tax;

whichever is less.

(3) If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India  in any previous year and such share includes any income accruing or arising outside India during that previous year (and which is not deemed to accrue or arise in India) in a country with which there is no agreement under section 90 for the relief or avoidance of double taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

Explanation.-In this section,-

           (i)  the expression "Indian income-tax" means income-tax [***] charged in accordance with the provisions of this Act;

          (ii)  the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this [Chapter], by the total income;

         (iii)  the expression "rate of tax of the said country" means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country;

         (iv)  the expression "income-tax" in relation to any country includes any excess profits tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.