Relief from Double Taxation: Sections 90, 90A, & 91 of IT Act
Nowadays, many individuals and companies earn profits in different countries around the world. Because of this scenario, both the country of work and the home country might tax the same income, which is known as double taxation. India has made Double Taxation Avoidance Agreements (DTAAs) with over 94 other nations, using Sections 90, 90A, and 91 of the Income Tax Act of 1961 to do so. They help prevent people and companies from being taxed twice on the same income, ensuring they get the needed help to improve their international work and trading. This post offers a comprehensive guide on DTAA and the relief from double taxation and section 90, 90A and 91 of IT Act.
Understanding DTAA and Its Purpose
Creating a DTAA allows nations to agree not to tax income twice. DTAA’s main aims are the following:
- Preventing income from being assessed and taxed in both the state and country where it is received.
- DTAAs prevent the issue of tax fraud by trying to stop tax evasion.
- Mutual Economic Investments Made Easier: When there are clear tax laws, countries are encouraged to do more trade and invest with one another.
- Allowing tax authorities to exchange information is a way to enforce the law.
Methods of Providing Relief Under DTAA
There are two chief methods for giving relief under DTAA.
- Under the Exemption Method, income will be taxed in only one country, while the other nation does not tax it. The result is that income is taxed at one and only one level.
- Tax Credit Method: This means you’re taxed in both countries, but the resident nation gives you a credit for the tax you’ve paid in the other country. This way, credit allows you to avoid paying taxes on the same income twice in different countries.
Sections of the Income Tax Act Related to DTAA
- In section 90, the Central Government is allowed to sign agreements with other countries to eliminate double taxation and to collect tax information. The agreement means taxpayers can either get a credit for the taxes they pay abroad or avoid paying taxes on specific earnings in India, subject to what the DTAA states.
- Like Section 90, Section 90A covers agreements made between certain associations inside India and those in specified territories outside India. It reduces the risk of being charged twice and exchanges data between countries.
- In situations where there is no DTAA between India and another nation, Section 91 gives Indians relief unilaterally. It helps Indian taxpayers get a refund for taxes they paid in a foreign country on income that they are also taxed on in India.
Sections of the Income Tax Act Related to DTAA
Correct steps are required to receive relief under DTAA.
- The tax authorities of your country will issue you a Tax Residency Certificate (TRC) if you are a resident there. It shows you are a resident, which you need for the benefits under DTAA.
- The Income Tax Department’s online system requires you to file form 67 online through the e-Filing portal. It reports the income you have earned overseas, together with taxes you’ve paid and is needed for using the Foreign Tax Credit (FTC) under Sections 90 and 91.
- People with foreign income should store copies of financial statements, payments made and related documentation to back up their reports.
Benefits of DTAA
Elimination of Double Taxation: This treaty prevents income earned in any country from being taxed one more time in another nation, thus saving NRIs, expats, and global firms from paying tax on their worldwide profits.
Reduction in Overall Tax Burden: Because people and companies do not pay taxes twice, they end up using more of their income and making higher profits.
Clear and Predictable Tax Guidelines: To help taxpayers, DTAAs describe the necessary tax rules for each type of income (such as salaries, interest, dividends, royalties and capital gains).
Legal Certainty and Reduced Disputes: DTAAs structure and rules reduce the risk of tax disagreements between countries and ensure taxpayers feel more confident about managing their finances.
Encouragement of Foreign Investment: Because tax rules under DTAAs involve reduced withholding taxes and give credits, more people are encouraged to invest in countries other than their own, lead to foreign direct investment (FDI) and capital inflows.
Boost to International Trade and Business Expansion: Because tax rules are easier and financial risks are lower, companies are eager to expand abroad and build partnerships across borders, which increases trade ties with other countries.
Exchange of Information and Enhanced Transparency: A lot of DTAAs contain sections that allow tax authorities from each country to share information. With this exchange, financial transactions across borders can be tracked and stopped from being tax-free.
Deterrence Against Tax Avoidance and Evasion: Because these agreements increase transparency and teamwork, it is tougher for anyone to use tricks to avoid paying tax, which supports fairness worldwide.
Support for Economic Stability: Through fair and clear tax policies, DTAAs encourage global investment, promote good world relations, and aid countries’ financial stability.
Double Tax Relief through Credit or Exemption Methods: Under the DTAA model, a taxpayer can be granted a tax credit on the source income or avoid double taxation, so everyone’s income remains untaxed.
Beneficial for NRIs and Expatriates: Those in India known as NRIs who generate income in India, but reside in a DTAA partner nation, can avoid being charged tax twice.
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Making sure that taxpayers do not suffer from double taxation is possible thanks to the Double Taxation Avoidance Agreement. Those who follow the rules set by DTAA can both reduce their tax responsibilities and confidently take part in international business activities. To unlock the potential of DTAA and utilize the full benefits, reach out to seasoned experts at TaxDunia.
