Reviewed by Sreeram
Double Taxation refers to the phenomenon of taxing the same income twice. This occurs when the same item related to an individual’s income is treated as being accrued, arising or received in more than one country. The article studies Double Taxation Relief according to Section 90 of the Income Tax Act.
Solving the problem of Double Taxation
To mitigate the double taxation of income the provisions of double taxation relief were codified. The double taxation relief is accessible in two ways, one is unilateral relief and the other is bilateral relief. Government of India is entitled to work out an agreement with a foreign government as per Entry 14 of the Union List concerning any matter, on the condition that Parliament verifies
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This will authorize the tax credit or reduction for the tax charged in the country of residence.
Example related to Section 90-Double Taxation Relief
Mr. Sameer, a resident, earned an income in India amounting to Rs. 3, 00,000. In addition to it, he earned income from a foreign country, which amounts to Rs. 1, 00,000 (Tax paid in foreign country Rs. 10,000). How much tax relief Mr. Sameer could claim and how much tax will he be required to pay?
The relief shall be computed as follows:
I. Global income is- Rs. 4, 00,000 (Rs.3, 00,000+ Rs.1, 00,000)
II. Tax on global income - Rs. 15,000
III. Average rate of tax- Rs .3.75% (15,000/4, 00,000x100)
IV. Tax required to be paid -Rs. 3,750 (Rs.1, 00,000x3.75/100)
V. Tax paid in foreign country is Rs. 10,000.
The amount of relief will be the lesser of IV and V i.e. Rs. 3,750.
Verdict of ITC Case (2002)
Given a scenario where Bilateral Agreement has been entered into with reference to Section 90 with a foreign country, then the assessee has an opportunity either to be taxed according to the Double Taxation Avoidance Agreement or according to the normal provisions of Income Tax Act 1961, whichever is more favorable to the
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