The number of opportunities when it comes to working in another country or locale has increased several folds in the recent past. Thus, more and more people are venturing out to other countries in the search of a better working environment, pay, experience, etc. In fact, countries are making way for better rules and regulations to allow for better cross-border policies.
If you are someone who has already moved to another country or is planning to do so, there is one aspect of the shifting process that you must not ignore, taxes. The domestic tax regime of a country might differ from that of another country, which is the least one can expect. However, being on top of the tax laws will ensure that you do not end up paying more taxes than you should.
When you move out of India during a fiscal year and start earning in another country or still have some financial interest in India, the taxation becomes a little bit more complicated. You would not only be taxed in the new country that you have moved to but might also be taxed in India. This is where bilateral relief comes into the picture.
There is a possibility that you have to pay taxes on your income in India and might be taxed again on the global income in the country that you shift to. The double taxation relief would ensure that you do not end up paying taxes twice. The DTAA or double taxation avoidance agreement is an agreement between countries that ensures that taxpayers do not end up paying taxes twice on the same income.
If you feel there is a possibility where you might be taxed twice, relief u/s 90 is exactly what you need. In the event that you have paid taxes in India and have to pay taxes in the current country of residence, you can claim tax credits under Section 90. Similarly, relief u/s 90A is for situations where the
If there is a DTAA with the specified associations, you can benefit from relief u/s 90A. There are still a few countries that do not have DTAA with India. When there is No DTAA section between India and another country, you can claim tax relief u/s 91. The details for all the sections and how you can avail them are mentioned below.
Relief can be claimed for income which is charged to tax both in India as well as in any other country.
Relief is granted as per the provisions of the Double Taxation Avoidance Agreement (DTAA) between that country and the Government of India if any or as per section 91 of the Act for tax paid in a foreign country.
Relief from Double Taxation can be provided in two ways:
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Bilateral Relief
When there is an agreement between two countries, relief is calculated according to mutual agreement between such two countries. Bilateral relief can be granted by either of the following methods:
- Exemption Method: Under this method, income is taxed in only one country
- Tax Relief Method: Under this method, income is taxed in both countries. Relief is granted in the country in which the taxpayer is the resident.
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Unilateral Relief
When there is no mutual agreement between the countries, relief is provided by the home country.
In simple words:
(I) In case there is DTAA with the Country, then Tax Relief can be claimed u/s 90.
(II) In case there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A.
(III) In case there is No DTAA, then Tax Relief can be claimed u/s 91.
Now let us consider each of the above situations in detail:
(I) In case there is DTAA with the Country, then Tax Relief can be claimed u/s 90.
It might happen that taxpayer is required to go abroad for any job assignment during any part of the year. In this case, he would receive a salary in India as well as a salary from that foreign country. Tax is deducted from both salaries in both countries. Since income received anywhere in the world is taxable in India in the case of residents, relief U/s 90 of the Income-tax Act can be claimed on the taxes paid on foreign income.
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Steps to compute Double Taxation relief:
- Compute Global Income i.e. aggregate of Indian income and Foreign income;
- Compute tax on such global income as per the slab rates applicable;
- Compute the average rate of tax (i.e. Global income divided by the amount of tax);
- Compute an amount by multiplying Foreign income with such average rate of tax;
- Compute Tax paid in Foreign country
The amount of relief shall be lower of (4) and (5).
- Example on relief u/s 90
Mr Sameer, a resident, earned an Income in India of Rs. 3,00,000/-. He also earned income from a foreign country Rs. 1,00,000 (Tax paid in foreign country Rs. 10,000). How much tax relief Mr Sameer could claim and how much tax he shall be required to pay?
The relief shall be calculated as follows:
- Global income is Rs. 4,00,000/- (Rs.3,00,000+ Rs.1,00,000)
- Tax on global income Rs. 15,000/-
- The average rate of tax is Rs. 3.75% (15,000/4,00,000*100)
- Tax required to be paid Rs. 3,750/- (Rs.1,00,000*3.75/100)
- Tax paid in a foreign country is Rs. 10,000/-.
The amount of relief shall be lower of (4) and (5) i.e Rs. 3,750/-
(II) In case there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A.
When a specified association in India enters into an agreement with a specified association abroad, the Central Government, may by notification adopt such agreement and provide relief under section 90A of the Income Tax Act, 1961.
The relief can be claimed only by the residents of the countries who have entered into the agreement. If residents of other countries want to claim relief, then they have to obtain a Tax Residence Certificate (TRC) from the government of that country.
(III) In case there is No DTAA, then Tax Relief can be claimed u/s 91.
When there is no DTAA, relief is granted under section 91.
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Steps to compute relief
- Compute tax payable in India
- Compute lower of Indian rate of tax and rate of tax in Foreign country
- Multiply the rate obtained in Step 3 by the doubly taxed income
Relief will be the amount as computed in Step 3.
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Example on relief u/s 91
Mr Rohan has doubly taxed foreign income of Rs. 1,00,000/-. Tax is payable in India at the rate of 30%. The tax rate in the Foreign country is 20%.
The relief shall be calculated as follows:
- Tax payable in India will be Rs. 30,000/- (1,00,000*30%)
- The lower of Indian rate of tax (30%) and the rate of tax in the Foreign country (20%) is 20%.
- The relief will be Rs. 20,000/- (1,00,000*20%)
The amount of relief will be Rs. 20,000/- as computed in Step 3.
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