Section 90, 90A 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 81 countries. DTAA provides two type of relief bilateral relief and other unilateral relief, under bilateral relief two national government entered into an agreement for giving relief under double taxation on Income earned by their residents and unilateral relief is given by home country to its resident or citizen to avoid the burden of double taxation.Section 90 of Income Tax Act deals with central government powers for entering into agreement with foreign government or territories and these tax treaties are based on two models of 1. OECD Models (The Organization for Economic Co-operation and Development) 2. U N Models Double Taxation Convention for DTAA agreement between develop and developing countries.
The Central Government may enter into an agreement with the Government of any country outside India or with any specified association in the specified territory outside India-
(a) for the granting of relief in respect of—
(i) income on which have been paid both income-tax under this Act and income-tax in that country; or
(ii) income-tax chargeable under this Act and under the corresponding law in force in that country to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or
(c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or
(d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.
For claiming any relief under DTAA person has to file Income Tax form 10F under rule 21AB of Income Tax rules. Information to be provided under sub-section (5) of section 90 or sub-section (5) of section 90A of the Income-tax Act, 1961 is Name, Status(Firm, Company etc.), PAN Number, Nationality/Country, Person Tax Identification Number i.e. SSN or PAN, Period for which DTAA is applied, Address.
Method of Calculation of Double Taxation Relief under Section 90, 90A
1. First include the income earned and taxed in the foreign country along with the income earned in India.
2. Then calculate tax on the Total income above.
3. Now calculate average rate of tax.
4. Then multiply such rate with the income earned from foreign country.
5. Deduct tax paid in the foreign country from the tax calculated in step 4 above.
Such amount is relief u/ s 90.
Example – In case of Resident individual.
Income earned in India = Rs500000
Income earned from foreign = 200000 (tax paid there = Rs. 50,000)
1. Total income is = 500000 + 200000 = 700000
2. Tax calculated on 7, 00,000/- is Rs. 118450/-
3. Average rate of tax is (118450 / 700000) = 16.92%
4. Calculate average tax on foreign income i.e. 200000 x 16.92% = Rs. 33840/-
5. Tax paid in foreign country is Rs. 50,000.
6. Hence relief u/s 90 is lower of 33840 and 50000, i.e. 33.840/-
Therefore tax statement is,
Tax on total income = 118450
Less: relief u/s 90 = 33840
Tax payable 84610/-
Relief U/s Section 91- Countries with which no Agreement Exists.
In any previous year, a person resident in India, has paid tax in any country with which India has no bilateral agreement under Section 90 for the relief or avoidance of double taxation in respect of his income which accrued or arose during that previous year under the law in force in that country, by deduction or otherwise, he shall be entitled to the deduction from the Indian Income Tax payable by him calculated on such doubly taxed income at this Indian Rate of Tax or the rate of the said country whichever is lower or at the Indian rate of tax, if both rates are equal.