Section 90A of the Income Tax Act, 1961: Understanding Double Taxation Avoidance and Advance Rulings

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Section 90A of the Income Tax Act, 1961 is an important provision that deals with the mechanism for relief from double taxation in cases where India has entered into a Double Taxation Avoidance Agreement (DTAA) with another country. This provision is aimed at facilitating international trade and investment by avoiding double taxation of the same income in two different countries. In this blog, we will discuss the key aspects of Section 90A of the Income Tax Act, 1961.

Table of Contents

Introduction

Double taxation occurs when the same income is taxed twice in two different countries. This can happen in cases where a person earns income in one country and then moves to another country where the same income is also taxable. This can lead to a situation where the taxpayer ends up paying taxes twice on the same income, which can be a significant burden. To avoid this situation, countries enter into DTAA to ensure that taxpayers are not subject to double taxation.

Key features of Section 90A

Section 90A of the Income Tax Act, 1961 provides the following key features:

Application of DTAA: This section provides that where the provisions of the DTAA are more beneficial to the taxpayer than the provisions of the Income Tax Act, the provisions of the DTAA shall prevail over the provisions of the Income Tax Act. This means that in case of any inconsistency between the provisions of the DTAA and the Income Tax Act, the provisions of the DTAA will prevail.

Authority for Advance Ruling (AAR): Section 90A also provides for the establishment of the Authority for Advance Ruling (AAR), which is an independent body that provides rulings on the application of the DTAA. Taxpayers can approach the AAR for rulings on the tax implications of any transaction or income arising under the DTAA.

Avoidance of double taxation: The main objective of Section 90A is to avoid double taxation of the same income in two different countries. This is achieved by providing relief in the form of tax credits or exemptions, as provided under the relevant DTAA.

Non-obstante clause: The provision of Section 90A has a non-obstante clause, which means that it overrides the provisions of the Income Tax Act, 1961, and other laws in force. This ensures that the provisions of the DTAA prevail over the provisions of the Income Tax Act, 1961, and other laws.

Benefits of Section 90A

The following are the benefits of Section 90A:

Relief from double taxation: The primary benefit of Section 90A is that it provides relief from double taxation of the same income in two different countries. This is achieved by providing tax credits or exemptions under the relevant DTAA.

Investment promotion: Section 90A promotes international trade and investment by removing tax barriers that may discourage cross-border transactions.

Certainty and predictability: The establishment of the AAR under Section 90A provides certainty and predictability in the tax treatment of cross-border transactions, as taxpayers can seek advance rulings on the tax implications of their transactions.

Double taxation is a significant burden on taxpayers, and it can discourage international trade and investment. Therefore, many countries have entered into DTAA with each other to provide relief from double taxation. India has entered into DTAA with many countries to promote international trade and investment.

Section 90A of the Income Tax Act, 1961 ensures that taxpayers can avail themselves of the benefits of the DTAA, and it also provides a mechanism for resolving any disputes arising under the DTAA. Taxpayers can approach the AAR for advance rulings on the tax implications of their cross-border transactions. The AAR provides certainty and predictability in the tax treatment of cross-border transactions, which is essential for promoting international trade and investment.

Moreover, Section 90A also ensures that the provisions of the DTAA prevail over the provisions of the Income Tax Act, 1961, and other laws in force. This is because the provisions of the DTAA are more beneficial to the taxpayer than the provisions of the Income Tax Act, 1961. Therefore, in case of any inconsistency between the provisions of the DTAA and the Income Tax Act, 1961, the provisions of the DTAA will prevail.

In addition to the benefits discussed above, Section 90A of the Income Tax Act, 1961 also plays a significant role in the prevention of tax evasion and avoidance. It ensures that taxpayers do not take advantage of the differences in the tax laws of different countries to evade or avoid taxes.

The establishment of the AAR under Section 90A provides an important mechanism for resolving disputes that may arise between taxpayers and the tax authorities. Taxpayers can approach the AAR for advance rulings on the tax implications of their cross-border transactions, which can help them avoid costly and time-consuming litigation in the future.

Furthermore, Section 90A also ensures that the benefits of the DTAA are available to all taxpayers who are eligible under the terms of the DTAA. This means that even if a taxpayer is not a resident of either of the countries party to the DTAA, they may still be eligible to avail themselves of the benefits of the DTAA, provided they meet the criteria set out in the agreement.

It is essential to note that while the provisions of the DTAA are more beneficial to the taxpayer than the provisions of the Income Tax Act, 1961, this does not mean that taxpayers can choose to apply the provisions of the DTAA selectively to their advantage. Taxpayers must comply with the provisions of both the DTAA and the Income Tax Act, 1961, and ensure that they do not engage in any tax evasion or avoidance.

Conclusion

In conclusion, Section 90A of the Income Tax Act, 1961 is an important provision that aims to promote international trade and investment by providing relief from double taxation of the same income in two different countries. This provision ensures that the provisions of the DTAA prevail over the provisions of the Income Tax Act, 1961, and other laws in force. The establishment of the AAR under Section 90A provides certainty and predictability in the tax treatment of cross-border transactions, which is essential for promoting international trade and investment.

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Frequently Asked Questions (FAQs)

  1. What is Section 90A of the Income Tax Act, 1961?

Section 90A is a provision in the Income Tax Act, 1961, which provides relief from double taxation for taxpayers who engage in cross-border transactions. It ensures that taxpayers can avail themselves of the benefits of Double Taxation Avoidance Agreements (DTAA) between India and other countries.

2. What is a DTAA?
A DTAA is an agreement between two countries that aims to prevent double taxation of income that may arise in both countries. The agreement ensures that taxpayers are not taxed twice on the same income, and it provides relief from double taxation.

3. How does Section 90A help in resolving disputes arising under the DTAA?
Section 90A establishes the Authority for Advance Rulings (AAR), which provides a mechanism for resolving disputes between taxpayers and the tax authorities. Taxpayers can approach the AAR for advance rulings on the tax implications of their cross-border transactions.

4. Can taxpayers choose to apply the provisions of the DTAA selectively to their advantage?
No, taxpayers must comply with the provisions of both the DTAA and the Income Tax Act, 1961, and ensure that they do not engage in any tax evasion or avoidance.

5. How does Section 90A ensure that taxpayers are not subjected to discriminatory tax treatment in foreign countries?
Section 90A provides for the elimination of double taxation and prohibits discriminatory tax treatment of taxpayers who are residents of either of the countries party to the DTAA.

6. Who is eligible to avail themselves of the benefits of the DTAA?
Taxpayers who are residents of either of the countries party to the DTAA may be eligible to avail themselves of the benefits of the agreement, provided they meet the criteria set out in the agreement.

7. Can taxpayers approach the AAR for rulings on matters other than cross-border transactions?
No, the AAR can only provide rulings on matters related to cross-border transactions.

8. What is the role of the AAR in Section 90A?
The AAR provides certainty and predictability in the tax treatment of cross-border transactions, which is essential for promoting international trade and investment.

9. How does Section 90A prevent tax evasion and avoidance?
Section 90A ensures that taxpayers do not take advantage of the differences in the tax laws of different countries to evade or avoid taxes.

10. Is Section 90A applicable only to Indian taxpayers?
No, Section 90A is applicable to all taxpayers who engage in cross-border transactions and are eligible to avail themselves of the benefits of the DTAA.

 

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