One of the common issues faced by most of the people living abroad is double taxation. In case of dual income, people have to pay taxes in the country they reside and native country, that is India. Section 91 of the Income Tax Act, 1961 plays an important role in providing relief to individuals having dual income.
Double taxation relief under Section 91 of IT Act
Section 91 of the IT Act can be understood if there is clarity about Section 90 and Section 90A.
Section 90
Section 90 of the IT Act is applied in cases, where India and other country has entered into a Double Taxation Avoidance Agreement (DTAA). Under this agreement, if a taxpayer is an Indian resident and the income, he earns is taxable in the foreign country where he stays, he can avail of relief under Section 90 if India has a DTAA with that country. If availed, the tax to be paid will be based on the terms and conditions agreed under the DTAA between India and the other country.
Section 90A
This section is applicable when a taxpayer is a resident of a specific country. Under this, the taxpayer has the choice to seek relief from double taxation under DTAA or IT Act, 1961 provisions, whatever is financially advantageous to him.
Section 91
- In the absence of a DTAA arrangement between India and a foreign country, Section 91 plays an important role, under which you can claim relief of dual taxation.
- Under Section 91, a taxpayer can get a tax credit in India for the taxes he pays in a foreign country where he stays. With this he can avoid double taxation.
- Computation: The tax relief is computed by taking into consideration the lower tax liability under IT Act and the tax paid in a foreign country. The lower of these two amounts can be claimed as tax credit by a taxpayer.
Section 91 of IT Act, 1961: Case studiesÂ
Income in a country having no DTAA agreement with India
You can avail tax credit if you earn income from a country having no tax agreement, pay taxes there and live in India.
Non-resident’s share in a firm’s income
You can avail of tax benefits if you are a Non-Resident Indian (NRI) working for an India-registered company and the previous year’s income includes earnings from a country without the DTAA agreement, you can avail of the tax deductions.
Tax levied on income on agriculture in Pakistan
If you are an Indian resident with income on agriculture in Pakistan, you can avail of tax deductions.
FAQs
What are the disadvantages of double taxation?
Double taxation means paying taxes twice, causing financial burden on the person paying it.
What is Section 91 of the IT Act?
Under Section 91 of the IT Act, all Indian residents can avail of tax credit for taxes paid in foreign countries that do not have the DTAA agreement.
How can a person seek relief under DTAA?
If a person needs tax relief under DTAA, he should produce the Tax Residency Certificate.
What is the full form of DTAA?
DTAA stands for Double Taxation Avoidance Agreement.
What are different types of DTAA?
DTAA are in the form of bilateral treaties, exemption methods, and tax credits.
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