Understanding Sections 90 and 91 of the Income Tax Act for Double Taxation Relief

Section 90 and 91 of the Income Tax Act: An Overview

The Income Tax Act is the governing law in India that outlines the taxation policies and procedures applicable to individuals and businesses. Section 90 and 91 of the Income Tax Act deal with double taxation relief, which is a mechanism to prevent the same income from being taxed twice in two different countries. In this blog, we will discuss Section 90 and 91 of the Income Tax Act in detail.

Section 90: Agreement with foreign countries for relief of double taxation

Section 90 of the Income Tax Act enables the Central Government to enter into agreements with foreign governments to provide relief from double taxation. This means that if an individual or a business is paying taxes on the same income in two different countries, they can claim relief from one of the countries by invoking the provisions of the relevant double taxation agreement (DTA).

Key provisions of Section 90

1. Definition of “foreign tax”: The term “foreign tax” is defined under this section as any tax paid or payable under the law of a foreign country in respect of income which is also taxable in India.
2. Relief from double taxation: Section 90 provides relief from double taxation by allowing the taxpayer to claim credit for the foreign tax paid against the Indian tax payable on the same income. This ensures that the taxpayer is not taxed twice on the same income.
3. Procedure for claiming relief: The procedure for claiming relief under a DTA is outlined in this section. The taxpayer must furnish the necessary documents and information to the Indian tax authorities to establish their eligibility for relief.
4. Determination of residency: Section 90 also provides rules for determining the residency of taxpayers for the purposes of claiming relief under a DTA. This is important because the tax liability of a taxpayer is determined based on their residency status.

Section 91: Double taxation relief in case of certain countries

Section 91 of the Income Tax Act provides relief from double taxation in case of certain countries where no DTA exists between India and the foreign country. This section enables the taxpayer to claim relief from double taxation by availing the provisions of the Income Tax Act.

Key provisions of Section 91

1. Relief from double taxation: This section provides relief from double taxation to taxpayers who are residents of India and have income accruing or arising outside India in a country with which India has no DTA.
2. Procedure for claiming relief: The procedure for claiming relief under Section 91 is similar to that under Section 90. The taxpayer must furnish the necessary documents and information to the Indian tax authorities to establish their eligibility for relief.
3. Calculation of relief: The relief available under Section 91 is the lower of the tax paid in the foreign country or the Indian tax payable on the same income.

Double taxation is a significant concern for individuals and businesses operating across borders. Without proper provisions to prevent it, double taxation can significantly increase the tax burden on the taxpayer and make cross-border investments less attractive. Sections 90 and 91 of the Income Tax Act, therefore, serve a critical role in facilitating cross-border investments and promoting economic growth.

Double taxation relief under Section 90 is available to taxpayers who are residents of India and have income accruing or arising in a foreign country with which India has a DTA. The relief is available in the form of a tax credit, which means that the taxpayer can claim a credit for the foreign tax paid against the Indian tax payable on the same income. The relief available under a DTA varies depending on the provisions of the specific agreement. However, most DTAs provide for relief in the form of a tax credit or exemption.

It is essential to note that claiming relief under a DTA requires the taxpayer to furnish certain documents and information to the Indian tax authorities. These documents typically include proof of payment of foreign taxes and a certificate of residency issued by the foreign tax authorities. It is, therefore, essential for taxpayers to maintain proper records and comply with the procedural requirements set out under Section 90.

Section 91 provides relief from double taxation in cases where no DTA exists between India and the foreign country. The relief available under Section 91 is similar to that available under Section 90, with the only difference being that the relief is limited to the lower of the tax paid in the foreign country or the Indian tax payable on the same income. Section 91 is a useful provision for taxpayers who operate in countries where India does not have a DTA, and it ensures that such taxpayers are not subjected to undue hardship.

Conclusion

Section 90 and 91 of the Income Tax Act play a crucial role in preventing double taxation of income in two different countries. They provide relief to taxpayers by allowing them to claim credit for the taxes paid in the foreign country against the Indian tax payable on the same income. The provisions of these sections ensure that taxpayers are not subjected to undue hardship and are not taxed twice on the same income. It is advisable for taxpayers to consult a tax expert to understand the implications of these sections on their tax liability.

Read more useful content:

• section 145 of income tax act
• section 10e of income tax act
• section 9 of the income tax act
• section 94b of income tax act
• section 206aa of income tax act

Frequently Asked Questions (FAQs)

What is double taxation?
Double taxation is a situation where the same income is taxed twice, once in the country where it is earned and again in the country where the taxpayer is a resident.

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What is Section 90 of the Income Tax Act?
Section 90 of the Income Tax Act provides for relief from double taxation by allowing the Central Government to enter into agreements with foreign governments to provide relief from double taxation.

Who is eligible for relief under Section 90 of the Income Tax Act?
Taxpayers who are residents of India and have income accruing or arising in a foreign country with which India has a DTA are eligible for relief under Section 90.

What is a Double Taxation Agreement (DTA)?
A Double Taxation Agreement (DTA) is an agreement between two countries that aims to prevent double taxation of income earned in both countries.

What is a tax credit?
A tax credit is a dollar-for-dollar reduction in the tax liability of the taxpayer. Taxpayers can claim a tax credit for the taxes paid in a foreign country against their Indian tax liability on the same income.

What is Section 91 of the Income Tax Act?
Section 91 of the Income Tax Act provides for relief from double taxation in cases where no DTA exists between India and the foreign country.

How is relief under Section 91 calculated?
The relief available under Section 91 is the lower of the tax paid in the foreign country or the Indian tax payable on the same income.

What documents are required to claim relief under Section 90 and Section 91?
To claim relief under Section 90 and Section 91, taxpayers must furnish the necessary documents and information, including proof of payment of foreign taxes and a certificate of residency issued by the foreign tax authorities.

Can a taxpayer claim relief under both Section 90 and Section 91?
No, a taxpayer cannot claim relief under both Section 90 and Section 91 for the same income.

What is the significance of Sections 90 and 91 of the Income Tax Act?
Sections 90 and 91 of the Income Tax Act play a crucial role in facilitating cross-border investments and preventing double taxation of income in two different countries. These provisions ensure that taxpayers are not subjected to undue hardship and promote economic growth.