Are You Paying Double Tax on a Single Income? Learn How To Claim a Tax Relief

Double taxation occurs when the same income is taxed twice, either in different countries or within the same country. The former is known as juridical double taxation. It occurs when income earned abroad is taxed both by the foreign country where it was earned and by India. This makes you pay taxes to two governments and creates a heavy tax burden.

The second situation represents economic double taxation, which occurs when income is taxed twice within the same country but in the hands of two different people. This usually happens with business profits or investments. Again, this situation is unfair to taxpayers.

Therefore, the Income Tax Act of 1961 provides relief to the affected taxpayers through tax treaties or other legal means. In this article, let’s understand how you can claim double taxation relief. 

• Double taxation occurs when the same income is taxed twice. It places an unfair monetary burden on taxpayers.
• Taxpayers can get double taxation relief through bilateral agreements (DTAA) or unilateral measures.
• The Income Tax Act of 1961 provides double taxation relief under three primary sections: Section 90, 90A, and 91.
• To claim relief u/s 90, taxpayers must obtain a Tax Residency Certificate and file Form 67. 

Relief from double taxation can be obtained through two main approaches: bilateral tax relief and unilateral relief. Let’s understand them in detail:

Bilateral tax relief

This approach applies when two countries have a tax agreement. The relief is calculated based on the terms of that agreement and has two key methods:

1. Exemption method: You will be taxed on your income in only one of the two countries.
2. Tax credit method: In this case, both countries tax your income. However, you can claim credit in your home country. This means you won’t have to pay additional taxes there.

Unilateral relief

If there is no agreement between your home country and another country, you can still receive relief. In this situation, your home country (that is, India) will provide some form of tax relief to reduce the impact of double taxation. Again, this ensures you are not unfairly taxed.

Double taxation creates financial stress for taxpayers. However, to provide relief, there are specific sections of the Income Tax Act that prevent you from being taxed twice on the same income. You can apply for relief in three main sections:

• Section 90
  If there is a Double Taxation Avoidance Agreement (DTAA) between India and another country, you can benefit from tax relief under this section. This reduces your overall tax burden.
• Section 90A
  This section applies if India has a DTAA with a specific association or organisation. It allows for similar tax relief as Section 90, however, the relief is restricted or calculated as per that specific agreement.
• Section 91
  If there is no DTAA between India and a foreign country, you can still seek relief under this section. It ensures that you are not unfairly taxed on the same income in both places.

Section 90 applies to Indian residents earning income from countries with which India has a DTAA. It covers various income types, such as:

• Salaries
• Business profits
• Dividends

This section offers two main methods to relieve double taxation under a DTAA. These are:

• The exemption method allows income taxed in one country to be exempt from tax in another.
• The credit method lets taxpayers offset taxes paid in one country against their tax liability in another.

Be aware that only residents of countries that have signed a tax agreement with India can benefit from this relief.

To claim relief under Section 90 of the Income Tax Act, taxpayers need to follow a clear process. First, they must get a Tax Residency Certificate (TRC) from the tax authorities in their country of residence. This certificate verifies that they are residents and eligible for relief under the DTAA.

Next, taxpayers should file Form 67 along with their income tax return. This form mentions the following information:

• Foreign income earned
• Taxes paid in the foreign country
• Amount of relief being claimed

Lastly, taxpayers must calculate the foreign tax credit. This amount is the lower of the following:

• Tax paid in India on foreign income
  and
• Tax paid in the foreign country.

After completing all these necessary steps, taxpayers can claim the double taxation relief u/s 90 in their income tax return and reduce their overall tax liability.