Double Taxation Avoidance Provisions under Indian Income Tax Act, 1961

In today’s globalized world, businesses, professionals, and individuals often earn income from multiple countries. While this opens up new opportunities, it also creates a problem — double taxation. This happens when the same income is taxed both in the source country (where income arises) and the residential country (where the taxpayer resides).

To provide relief to taxpayers and promote cross-border trade and investment, India has incorporated double taxation avoidance provisions under the Income Tax Act, 1961. These provisions, combined with Double Taxation Avoidance Agreements (DTAAs) that India signs with other countries, ensure that taxpayers do not pay tax twice on the same income.

In this blog, we explore the concept of double taxation, provisions under Indian tax law, and methods of claiming relief.

📌 What is Double Taxation?

Double taxation occurs when:

A resident taxpayer earns income in a foreign country that also taxes the income.
The same income is then taxed again in India when the taxpayer reports their global income.

For example, an Indian resident working remotely for a U.S. company may pay tax in the U.S. (as per U.S. law) and again in India (because Indian residents are taxed on global income).

⚖️ Legal Provisions under Income Tax Act, 1961

The Indian Income Tax Act provides relief from double taxation under Section 90, Section 90A, and Section 91:

1️⃣ Section 90 – DTAA with Foreign Countries

Section 90 empowers the Central Government to enter into a Double Taxation Avoidance Agreement (DTAA) with any other country.

Under this:

Taxpayers can choose to be taxed either under the Income Tax Act or under the DTAA, whichever is more beneficial.
India has DTAAs with 90+ countries including USA, UK, UAE, Singapore, and Australia.

Example: If DTAA between India and Singapore prescribes a 10% tax on royalty income, and the Indian domestic law prescribes 20%, the taxpayer will pay only 10% (DTAA benefit).

2️⃣ Section 90A – Agreement between Specified Associations

This section allows agreements between specified associations (not just governments) of India and foreign countries for granting relief on double taxation, subject to approval by the central government.

3️⃣ Section 91 – Unilateral Relief

When no DTAA exists between India and the foreign country, Section 91 provides unilateral relief.

It allows credit of tax paid in the foreign country against the Indian tax liability, limited to the lower of:

Indian tax payable on such income, or
Foreign tax paid on such income.

This ensures that even without a DTAA, Indian residents get relief from double taxation.

🧾 Methods of Double Taxation Relief

India generally uses two internationally accepted methods:

✅ 1. Exemption Method

Income earned abroad is exempt in the country of residence.

✅ 2. Tax Credit Method

Taxpayer pays tax in the source country, and credit of that tax is allowed against tax payable in the residence country.

India usually follows the Tax Credit Method in its DTAAs.

📅 Compliance for Claiming DTAA Benefits

To claim DTAA benefits, taxpayers must:

Obtain a Tax Residency Certificate (TRC) from the foreign country where they are resident.
File Form 10F electronically on the Income Tax portal.
Maintain supporting documents like foreign tax return, tax payment challans, and Form 26AS.

These compliances are mandatory to avoid disallowance of DTAA benefit during assessment.

🌎 Practical Examples

NRIs: Non-Resident Indians can avoid double taxation on salary, rental income, or capital gains earned in India by using DTAA provisions of their country of residence.
Freelancers & Consultants: Professionals providing services to foreign clients can claim foreign tax credit for tax deducted abroad.
Companies: Indian companies receiving royalty, interest, or dividend income from foreign subsidiaries can use DTAA provisions to lower withholding tax.

🔑 Benefits of Double Taxation Avoidance

Prevents economic double taxation and promotes fairness.
Encourages foreign investment by reducing tax burden.
Facilitates international trade by providing tax certainty.
Boosts compliance as taxpayers are more willing to report global income when double taxation is avoided.

⚠️ Key Points to Remember

Always compare domestic tax rate vs DTAA rate and choose the lower one.
Claim foreign tax credit (FTC) in the correct schedule while filing ITR.
Keep proper documentation as proof — missing TRC or Form 10F may result in denial of DTAA benefit.
Use professional advice for complex cross-border income like ESOPs, royalties, and capital gains.

✨ Conclusion

The double taxation avoidance provisions under the Indian Income Tax Act, 1961, along with India’s extensive DTAA network, are powerful tools for taxpayers with international income. By claiming relief under Section 90, 90A, or 91, taxpayers can significantly reduce their tax burden and avoid paying tax twice on the same income.

Whether you are an NRI, freelancer, multinational business, or individual investor, understanding and utilizing these provisions ensures compliance, reduces litigation risk, and maximizes take-home income.