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Section 90?

kishor (Exe. Trinee) (37 Points)

20 March 2012

what is section 90 of the income tax act,1961?

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CA Hemant Jain (Accounts/Internal Audit Officer) (90 Points)
Replied 20 March 2012

DTAA,,,,Under the section 90 of income tax act, the Central Government authorized to act as income tax department to enter into Double tax Avoidance Agreements with other countries. Double tax means if a person is non resident and earns the income from India, this law ensures he/she needs not to pay taxes in both countries. The main aim of this law is to maintain an equitable basis of allocation and differentiate the resident income and non resident income as well as tax treatment and tax rates.

This is also known as tax treaties which serve the purpose to protect tax payers against double taxation. It also serves to maintain courage to the businessman and professionals to work worldwide as this is a large market. This law also prevents discrimination between tax payers with a proper fiscal and monetary policy in this law. This law only of mutual understanding between almost all the countries to go and work and your tax will be deduct rationally.

In India the double taxation agreement is unique pattern of what the united nation (UN) has guided. In this agreement allocates jurisdiction between source and the residential country. This law also prescribed the maximum rate of taxation in the source country where the income arises and the maximum rate is generally lower than the tax rate for residents of source country. And after pay less tax to the source country, there is the law of double tax agreement comes into effect and the resident country agreeing to give credit for tax paid in the source country. Thus the taxpayer need to pay tax accordingly and hassle free, and work freely with no tax tension in the mind.

For example if a person earn 1000000 rupees overseas, the foreign government will take him 300000 for income tax whereas Indian government also demands same amount, so why a person will work overseas to only fulfill government treasury. Thus, the rule of double tax agreement has been made.

In this agreement the nature of work is divided to the taxation. Like interest, dividend and royalty and fees for technical services are subject to taxation of resident country. Source country also has the right of work but the taxation rates are prescribed in the law. The rate of taxation is on gross receipt and without deduction of expenses.

Capital Gain: - capital gain arises from sale and purchase of fixed assets. In this law the capital gain are taxed in the country where such assets arises. The nature of capital assets is such that they are established at on palace so if somebody sells the assets in India, he/she need to pay the taxes of capital gain in India only.

Business income: - for the business income, the source country will only eligible to cut taxes if there is permanent establishment of business in the source country. Taxation on the business income is on the net income from the business.

Professional services: - income arrived from professional services are tend for the resident country except in the case of the income arrived from a fixed source of income. In this case the source country is eligible for taxes. Professional income also will be taxed in the source country if his/her stay exceeds 183 days in a financial year.

Countries where no agreement exists

If a person proves that he worked in the country where no agreement exists with India and he had paid taxes to the government of other countries, he had entitled to exemption up to tax paid there. Means if he paid fewer taxes than need to pay here, he need to pay the remaining taxes if there equals or higher, he needn’t to may more taxes.