Introduction:

Income taxpayers in India are eligible for relief under Sections 90, 90A and 91 of the Income Tax Act, 1961 as per the provisions of the Double Taxation Avoidance Agreement (DTAA).

In India’s dynamic global business landscape, individuals often earn income from abroad, leading to the risk of double taxation by both source and resident countries. To tackle this, India has signed DTAA with over 94 nations, enabling businesses to avoid dual taxation. Sections 90, 90A, and 91 of the Income Tax Act facilitate the implementation of DTAA, offering relief measures against potential double taxation.

Section 90:

Section 90 of the Taxation Act deals with the concept of Double Taxation Relief (DTR), which is given to taxpayers who face tax on the same income in two different countries This situation arises when a person earns income abroad and is taxed also for that income in India. In such cases, DTR protects against double taxation, ensuring that individuals are not taxed twice on the same amount.

Double Taxation Relief Methods:

Two types of reliefs are available to prevent double taxation, namely:

Unilateral Relief: 

In the absence of an agreement between the home and resident countries, the responsibility of providing tax relief and averting double taxation falls on the home country. Section 91 elaborates on the unilateral relief aspect comprehensively.

Bilateral Relief:

Bilateral relief applies when a Double Taxation Avoidance Agreement (DTAA) is in place between two countries. This segment encompasses two methods: the exemption method and the credit method.

Section 90A:

Section 90A comes into play when a Double Taxation Avoidance Agreement (DTAA) is established between specific entities in two countries. If a particular organization or association in India has entered into a DTAA with its counterpart in a foreign country, tax relief is available under Section 90A

This section mirrors the process outlined in Section 90, with the distinction being that the agreement pertains to two institutional bodies rather than two countries.

Relief Under Section 90A:

Section 90A, which pertains to organizations that have signed DTAA, provides tax relief in the form of a tax credit if the tax paid in a foreign country surpasses the minimum tax payable in India. This process closely resembles that of Section 90 of the Income Tax Act.

Section 91:

As per Section 91 of the Income Tax Act, a person can claim tax relief in cases where India does not have a DTAA with another country. Even though India has signed DTAA agreements with more than 94 countries, Section 91 of the IT Act extends double tax relief even to income earned by countries without such agreements

In this scenario, the unilateral relief method is applicable because there is no DTAA in place. Since the individual is subject to taxation in two separate countries, they can claim the lower of the two applicable tax rates as relief.

Double Taxation Relief and Double Taxation Avoidance:

Here are key aspects that illustrate the distinctions between double taxation relief and avoidance:

Double Taxation Avoidance: 

• It prevents the imposition of income tax twice on the same income by offering tax relief.
• This applies according to agreements between the Indian government and foreign governments.
• Double Taxation Avoidance is applicable under Sections 90 and 90A of the Income Tax Act.

Double Taxation Relief: 

• Tax relief is provided either through the exemption method or the credit method.
• Double Taxation Relief under Sections 90, 90A, and 91 can be claimed regardless of whether a Double Taxation Avoidance Agreement (DTAA) is signed between India and the foreign country.
• Tax benefits are provided through bilateral or unilateral channels.

Penalties:

• The penalty shall be 50% of the tax payable on under-reported income, meaning income declared by the taxpayer is less than the income determined by the tax authorities.
• If the income tax authorities discover that the taxpayer’s provided books of accounts contain fake invoices or any falsified documentary evidence, such as sales or purchase invoices lacking actual supply or receipt of goods or services, or sourced from non-existent entities, or significant transactions omitted for taxable income computation, a penalty equivalent to the sum of such false or omitted entries may be imposed.
• The general penalty leviable is Rs. 25,000. However, if foreign transactions are involved, it amounts to 2% of the value of such international transactions.
• The tax authorities will determine the penalty amount, ensuring it does not exceed the tax payable.
• A penalty of Rs. 5,000 will be imposed for failure to file the Income Tax Return.

 Conclusion:

To mitigate double taxation, Sections 90, 90A, and 91 establish provisions enabling taxpayers to avail benefits and pay taxes only once on their foreign earnings. Tax credit and relief are both applicable, depending on the presence or absence of a DTAA or the applicant’s status.