International double taxation

International Double Taxation – International double taxation arises when the same income is taxed in two or more countries, typically because a taxpayer earns income in a foreign country while being a resident of another. This situation can create an excessive tax burden and discourage cross-border trade and investment. Key Points: Often occurs with foreign-source income like dividends, interest, royalties, or salaries. Mitigation mechanisms include: Double Taxation Avoidance Agreements (DTAA): Bilateral treaties that provide relief by allowing tax credits, exemptions, or reduced rates. Foreign Tax Credit: Taxes paid abroad can be credited against domestic tax liability. Exemption Methods: Certain foreign income is exempt from domestic taxation. Example: An Indian resident earns interest income from a bank in the USA. Without relief, both the USA and India could tax this income. Under the India-USA DTAA, India may allow a credit for the tax paid in the USA, preventing double taxation