In the current business environment, businesses are expanding outside the border of countries and becoming global. Many foreign companies are operating in India, and many Indian companies are operating in foreign countries. These companies pay taxes on the same income in more than one country. To provide relief from double taxation, governments are entering the Double taxation avoidance agreement.
Income tax also offers numerous reliefs to the assesses. In India, Section 91 of the tax Act, 1961 provides such relief. In other words, where Section 90 doesn’t apply for relief under Section 91 are getting to be available. Double taxation refers to taxing the same income twice, which occurs when the same item of an individual’s income is managed as accruing, arising or received in an additional than one country. It’s a universally accepted principle that no income should be taxed twice. Income-tax Act, 1961 serves to such regulation by providing relief in case of double taxation under section 90 and section 91.
Types of relief There are two modes by which relief can be provided:
Bilateral relief When the two countries’ governments agree to supply relief against double taxation by jointly understanding the system to grant it, in India, bilateral replacement is contributed under Section 90 and 90A of the Income-tax Act, 1961.
Agreements in this form of relief can be of two types:
Exemption method When two countries agree that income emerging from specified sources, which are taxable in both the countries, should either be taxed in just one among them or that each of the 2 countries should tax only a specific specified portion of the income so that there’s no overlapping.
Tax credit method In this kind of agreement, single taxability is not administrated, but some relief is provided. The assessee is given a deduction however he is liable to have his income taxed in both countries.
Section 90 Of Income-Tax Act, 1961 states
The Central Government may agree with the govt of any country outside India:
for the granting of relief in respect of:
income on which are paid both income-tax under this Act and income-tax therein country
income-tax chargeable under this Act and the corresponding law effective therein government to market mutual economic relations, trade and investment, or
For the evasion of double taxation of income under this Act and the related law influential therein country, or
For exchange of data for prevention of evasion or avoidance of income-tax chargeable under this Act or the corresponding law effective therein country, investigation of cases of such evasion or release, or
For recovery of income tax under this Act and the related law influential therein government, and may, by notification within the Official Gazette, make such provisions as could also be necessary for implementing the agreement.
Where the Central Government has agreed with the govt of any country outside India under sub-section (I) for granting relief of tax, or because the case could also be avoidance of double taxation, then, in reference to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they’re more beneficial to it assessee.
Any term used but not defined during this Act or within the agreement mentioned in sub-section (I), unless the context otherwise requires, and isn’t inconsistent with the provisions of this Act, have an equivalent meaning as assigned to it within the notification issued by the Central Government within the Official Gazette during this behalf.
Section 90A of Income-tax, 1961 Act states, Adoption by Central Government of agreement between specified associations of double taxation relief
Unilateral relief The relief provided by the home country regardless of any agreement with the government concerned. This type of relief exists because bilateral contracts won’t be sufficient to satisfy all the cases. In India, Section 91 of the tax Act, 1961 provides such relief. In other words, where Section 90 doesn’t apply for relief under Section 91 will be available. Unilateral relief is merely available about doubly taxed income that’s a part of income that is included in the assessee’s overall income.
Section 91 of Income Tax Act, 1961 states
If a person who is a citizen in India in any previous year proves that, in respect of his income accrued during the previous year outside India (and which isn’t consider to accrue or arise in India) he has paid in any country with there’s no agreement under section 90 for relief or avoidance of double taxation, by deduction, under the law effective therein country. In that case, he shall be authorised to the deduction from the Indian income-tax payable by him of a sum evaluated on such dual taxed income at the Indian rate of tax or of the said country, whichever is lower, or the Indian rate of tax if both the rates are equal.
If a person who is residing in India in any previous year proves that in regard of his income which accrued or arose to him during that previous year in Pakistan, he has paid therein country, by deduction or otherwise, tax payable to the government under any law for the non-effective therein country relating to the taxation of agricultural income, he shall be authorised to a deduction from the Indian income-tax owed by him:
The quantity of tax paid in Pakistan under any law aforesaid on such income which is susceptible to tax under this Act also; or
Of a sum calculated thereon income at the Indian rate of tax; whichever is less.
If any non-resident person is evaluated on his share within the income of a registered firm assessed as a resident in India in any previous year and such claim includes any income accruing outside India during that previous year (and which isn’t deemed to accrue or arise in India) during a country with which there’s no agreement under section 90 for the relief or eluding of double taxation, and he proves that he has paid income-tax by deduction or otherwise under the law effective in that country in respect of the income so included he shall be sanction to a deduction from the Indian income-tax payable by him of a sum evaluated on such dual taxed income so included at the Indian rate of tax or the speed of taxation of the said country, whichever is that the lower, or at the Indian rate of tax if both the rates are equal.
The double taxation system is promising in a country. A treaty of double taxation provides against non-discrimination of foreign taxpayers as well benefits the taxpayer of a nation to know about his liabilities with greater certainty. After the amendment to the treaty, India gets the right to tax on capital gains from the transfer of shares of Indian resident companies.
At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, ITR Filings, TDS returns, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the Income-tax Act under Section-90 and 91, kindly contact us.
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