Understanding Section 90 of Income Tax Act – Key Provisions and Benefits

Taxation is an integral part of any economy, and India is no exception. The Income Tax Act, 1961, is the primary legislation that governs the taxation of income earned by individuals, companies, and other entities in India. While the Act outlines the tax liabilities and obligations of taxpayers, it also provides provisions that enable taxpayers to reduce their tax burden. One such provision is Section 90 of the Income Tax Act. This article provides an overview of Section 90 of the Income Tax Act and its key provisions and benefits.

What is Section 90 of the Income Tax Act?

Section 90 of the Income Tax Act, 1961, provides for relief from double taxation for taxpayers who are residents in India and have paid tax on their income in another country. The provision is based on the principles of international law, which prohibit a country from taxing the same income twice. Essentially, Section 90 aims to ensure that taxpayers are not subject to double taxation, either in India or in the foreign country in which the income is earned.

Key Provisions of Section 90

The following are the key provisions of Section 90 of the Income Tax Act:

1. Relief from double taxation: Section 90 provides for relief from double taxation to taxpayers who are residents in India and have paid tax on their income in another country. The relief can be claimed in the form of a tax credit or an exemption.
2. Countries with which India has a Double Taxation Avoidance Agreement (DTAA): Section 90 applies to countries with which India has a DTAA. Currently, India has signed DTAA with more than 90 countries, including the United States, the United Kingdom, Japan, and Germany.
3. Tax credit method: Under the tax credit method, the taxpayer can claim a credit for the taxes paid in the foreign country against the tax payable in India. The tax credit is limited to the amount of tax payable in India on the income earned in the foreign country. The tax credit is available for all types of income, including business income, capital gains, and income from other sources.
4. Exemption method: Under the exemption method, the income earned in the foreign country is exempt from tax in India. The taxpayer is not required to pay tax on the foreign income in India, provided they meet certain conditions, such as submitting the required documents to the tax authorities.

Benefits of Section 90

The following are the key benefits of Section 90 of the Income Tax Act:

1. Avoidance of double taxation: The primary benefit of Section 90 is the avoidance of double taxation. Taxpayers who earn income in a foreign country and pay tax on it can claim relief from double taxation under Section 90.
2. Tax credit or exemption: Section 90 provides for relief in the form of a tax credit or an exemption. Taxpayers can choose the option that is more beneficial to them, based on their tax liability.
3. Encourages cross-border trade and investment: Section 90 encourages cross-border trade and investment by providing relief from double taxation. This, in turn, promotes economic growth and development in India and other countries.

Conclusion

Section 90 of the Income Tax Act, 1961, is an essential provision that provides relief from double taxation to taxpayers who are residents in India and have paid tax on their income in a foreign country. The provision is based on the principles of international law and aims to ensure that taxpayers are not subject to double taxation, either in India or in the foreign country in which the income is earned. Taxpayers can choose to claim relief in the form of a tax credit or an exemption, based on their tax liability.

Read more useful content:

• section 234e of income tax act
• section 286 of income tax act
• section 90a of income tax act
• section 40a(7) of income tax act
• section 226(3) of income tax act
• section 24 of income tax act

Frequently Asked Questions (FAQs)

Q: What is Section 90 of the Income Tax Act?
A: Section 90 provides relief to taxpayers who are residents in India and have paid tax on their income in another country. It aims to ensure that taxpayers are not subject to double taxation, either in India or in the foreign country in which the income is earned.

Q: Which countries are covered under Section 90?
A: Section 90 applies to countries with which India has signed a Double Taxation Avoidance Agreement (DTAA). Currently, India has signed DTAA with more than 90 countries, including the United States, the United Kingdom, Japan, and Germany.

Q: What is the relief provided under Section 90?
A: Section 90 provides relief from double taxation in the form of a tax credit or an exemption. Taxpayers can choose the option that is more beneficial to them, based on their tax liability.

Q: What is the tax credit method under Section 90?
A: Under the tax credit method, the taxpayer can claim a credit for the taxes paid in the foreign country against the tax payable in India. The tax credit is limited to the amount of tax payable in India on the income earned in the foreign country.

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Q: What is the exemption method under Section 90?
A: Under the exemption method, the income earned in the foreign country is exempt from tax in India. The taxpayer is not required to pay tax on the foreign income in India, provided they meet certain conditions, such as submitting the required documents to the tax authorities.

Q: Can relief be claimed for all types of income under Section 90?
A: Yes, relief can be claimed for all types of income, including business income, capital gains, and income from other sources.

Q: How can taxpayers claim relief under Section 90?
A: Taxpayers can claim relief by filing their income tax returns and providing the necessary documents to the tax authorities. They can choose the option that is more beneficial to them, based on their tax liability.

Q: Is it mandatory to claim relief under Section 90?
A: No, it is not mandatory to claim relief under Section 90. Taxpayers can choose not to claim relief and pay tax on their foreign income in India.

Q: What are the benefits of Section 90?
A: The primary benefit of Section 90 is the avoidance of double taxation. Taxpayers who earn income in a foreign country and pay tax on it can claim relief from double taxation under Section 90. This, in turn, encourages cross-border trade and investment and promotes economic growth and development.