Important Keyword: Income Tax, Income Tax for NRI, Section 90.

Relief under section 90, 90A and 91

When relocating from India during a financial year and earning income in another country, or maintaining financial interests in India, taxation can become complex. Income may be subject to taxation both in the new country of residence and in India. To prevent double taxation of the same income, relief is available under sections 90, 90A, and 91 of the Income Tax Act. Tax relief can be claimed as follows:

1. If a Double Tax Avoidance Agreement (DTAA) exists with the country of residence, tax relief can be claimed under section 90.
2. If there is a DTAA with specified associations, tax relief can be claimed under section 90A.
3. If there is no DTAA in place, tax relief can be claimed under section 91.

These provisions aim to ensure that individuals are not unduly burdened with double taxation on the same income, providing relief through international agreements or domestic legislation.

Types of Relief

Relief from Double Taxation can be granted through two avenues:

1. Bilateral Relief: This occurs when there is an agreement between two countries, and relief is determined according to the mutual understanding between them. Bilateral relief can be administered through two primary methods:a. Exemption Method: With this approach, income is taxed in only one country, typically the country of residence.b. Tax Relief Method: Under this method, income may be taxed in both countries, but relief is granted in the country of residence, ensuring that the taxpayer is not subject to double taxation.
2. Unilateral Relief: In cases where no mutual agreement exists between the countries, relief is provided solely by the taxpayer’s home country. This unilateral action ensures that individuals are not unfairly burdened by double taxation, despite the absence of an international agreement.

Relief under Section 90

Section 90 of the Income Tax Act provides relief measures for taxpayers facing double taxation, wherein they are taxed both in India and in a foreign country or territory. This section empowers the Central Government to enter into agreements with foreign governments or territories, aiming to grant relief for taxes paid in India and abroad.

For instance, let’s consider Mr. Ankit, a resident who earned INR 4,00,000 in India and INR 1,00,000 in a foreign country (with foreign tax paid amounting to INR 10,000). Here’s how relief is calculated:

1. Total global income: INR 5,00,000 (4,00,000 + 1,00,000)
2. Tax on global income: INR 12,500
3. Average tax rate: 2.5% (12,500/5,00,000*100)
4. Tax payable on foreign income: INR 2,500 (1,00,000*2.5/100)
5. Tax paid in the foreign country: INR 10,000

The relief amount is the lower of (4) and (5), i.e., INR 2,500.

Relief under Section 90A is applicable when there is a Double Taxation Avoidance Agreement (DTAA) with specified associations. The relief calculation follows the same method as Section 90. Additionally, relief under Section 90A can be claimed by residents of countries that have entered into agreements with the Indian government. Non-residents can claim relief by obtaining a Tax Residence Certificate (TRC) from their country’s government.

Section 91 applies when there is no agreement with any other country, and unilateral relief is provided. The relief is computed by:

1. Calculating the tax payable in India.
2. Comparing the Indian tax rate with the foreign tax rate.
3. Multiplying the lower tax rate with the doubly taxed income.

For example, if Vartika has a doubly taxed foreign income of INR 1,00,000, with a 30% tax rate in India and a 20% foreign tax rate, relief is calculated as follows:

• Tax payable in India: INR 30,000 (1,00,000 * 30%)
• Lower tax rate: 20%
• Relief: INR 20,000 (1,00,000 * 20%)

Read More: Income tax rules for NRI returning to India

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Official Income Tax Return filing website: https://incometaxindia.gov.in/