Relief under section 90a, 91, 90 and calculation

When you move out of India during a fiscal year and start earning in another country or still have some financial interest in India, the taxation becomes a little bit more complicated. You would not only be taxed in the new country that you have moved to but might also be taxed in India. This is where bilateral relief comes into the picture.

If you feel there is a possibility where you might be taxed twice, relief u/s 90 is exactly what you need. In the event that you have paid taxes in India and have to pay taxes in the current country of residence, you can claim tax credits under Section 90.

If there is a DTAA with the specified associations, you can benefit from relief u/s 90A. There are still a few countries that do not have DTAA with India. When there is No DTAA section between India and another country, you can claim tax relief u/s 91. Relief is granted as per the provisions of Double Taxation Avoidance Agreement (DTAA) between that country and Government of India, if any or as per section 91 of the Act for tax paid in foreign country.

Relief from Double Taxation can be provided in two ways:

1. Bilateral Relief
2. Exemption Method: Under this method, income is taxed in only one country
3. Tax Relief Method: Under this method, income is taxed in both the countries. Relief is granted in the country in which the taxpayer is the resident.
4. Unilateral Relief
5. In case there is DTAA with the Country, then Tax Relief can be claimed u/s 90.
6. Compute Global Income i.e. aggregate of Indian income and Foreign income;
7. Compute tax on such global income as per the slab rates applicable;
8. Compute average rate of tax (i.e. Global income divided by amount of tax);
9. Compute an amount by multiplying Foreign income with such average rate of tax;
10. Compute Tax paid in Foreign country

EXAMPLE – Mr. Sameer, a resident, earned income in India Rs. 3,00,000/-. He also earned income from foreign country Rs. 1,00,000 (Tax paid in foreign country Rs. 10,000). How much tax relief Mr. Sameer could claim and how much tax he shall be required to pay?

CALCULATION

• Global income is Rs. 4,00,000/- (Rs.3,00,000+ Rs.1,00,000)
• Tax on global income Rs. 15,000/-
• Average rate of tax Rs. 3.75% (15,000/4,00,000*100)
• Tax required to be paid Rs. 3,750/- (Rs.1,00,000*3.75/100)
• Tax paid in foreign country is Rs. 10,000/-.
• In case there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A. –  The relief can be claimed only by the residents of the countries who have entered into the agreement. If resident of other countries wants to claim the relief, then they have to obtain a Tax Residence Certificate (TRC) from the government of that country.
• In case there is No DTAA, then Tax Relief can be claimed u/s 91.
• Compute tax payable in India
• Compute lower of Indian rate of tax and rate of tax in Foreign country
• Multiply the rate obtained in Step 3 by the doubly taxed income

EXAMPLE- Mr. Rohan has doubly taxed foreign income of Rs. 1,00,000/-. Tax is payable in India at the rate of 30%. Tax rate in Foreign country is 20%.

CALCULATION

• Compute tax payable in India
• Compute lower of Indian rate of tax and rate of tax in Foreign country
• Multiply the rate obtained in Step 3 by the doubly taxed income