How To Get Relief From Double Taxation

In case , one earns income which suffers tax outside India, the Income Tax Act has clear provision of relief from such double taxation. The relevant provision are contained in section 90 and section 91 of the I T Act.

Section 90 is applicable for the cases when the tax has been paid in a country with which India has signed comprehensive double taxation avoidance agreements. There are Double Taxation Avoidance Agreements with as many as 79 countries .Comprehensive agreements are signed with these countries and Limited agreements with these countries.

Section 90(2) of the I T Act provides that the provision of the Income Tax Act shall apply in those cases where DTAA s signed , to the extent is more beneficial to the person.CBDT's circular No 333 dt 2.4.1998 [137 ITR 1 &2] clarified that whenever there is any conflict noticed on an issue between the provisions contained in both statutes , DTAA shall prevail over the statutory provision of the I T Act. In this regard , Supreme Court held that DTAA constitute special provisions which would prevail over general provision of the I T Act and effect must be given to the special provision of the DTAA even if they are in conflict with general provision of the I T Act.Two important case laws are as under

• Union of India vs Azadi Bachao Andolan 263ITR 706 SC
• CIT vs P.V.L. Kulandagan Chettiar [2004] 267ITR654 SC

What if there is no DTAA agreements?

In that case ,section 91 of the I T Act provides relief from double taxation. Provision of Section 91 of the I T Act says

"(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"

The general rule of computation of relief is as under:

1. Ascertain doubly taxed income .

2. Ascertain tax by applying Indian rate of tax as well as rate of foreign country separately.

3. Which ever is less , relief is given to that extent.

Certain other points need attention here :

1. Doubly taxed income has not been defined ,but as expressed in a court decision by Madras High Court in CIT vs O.VR,SV.VR Arunachalam Chettiar [, it means only that portion of income on which tax has been paid by the Resident in India which was subjected to taxation abroad also.

2. As per explanation given under Section of the I T Act ,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;