Double Taxation Relief- Rules and Benefits in India
                     Double Taxation Relief: Rules and Benefits in India
Double taxation occurs when the same income is taxed both in India and a foreign country. To address this, 
Indian residents earning income abroad can claim Foreign Tax Credit (FTC) for taxes paid overseas. Relief is 
available either under bilateral agreements—the Double Taxation Avoidance Agreements (DTAAs) 
governed by Sections 90 and 90A—or under unilateral relief as per Section 91 when no DTAA exists. The 
DTAA ensures that a taxpayer is not taxed twice on the same income and that the more beneficial 
provision between the DTAA and the Income Tax Act applies. The agreements usually contain articles 
defining scope, residence, income types, and mechanisms for resolving disputes, covering aspects such as 
business profits, capital gains, royalties, and dividends. When claiming DTAA benefits, a non-resident must 
obtain a Tax Residency Certificate (TRC) from the foreign tax authority and furnish Form 10F electronically. 
Indian residents seeking relief must apply in Form 10FA for a TRC, issued in Form 10FB. The credit for 
foreign tax is allowed in the year the income is offered to tax or assessed in India, and if the income spans 
multiple years, credit is proportionally distributed. India generally adopts the Ordinary Credit Method, 
where the allowable relief is the lower of the tax payable in India on the foreign income or the tax actually 
paid abroad. Any excess foreign tax beyond this limit is ignored, and no credit is allowed for taxes under 
dispute.
Claiming Foreign Tax Credit: Process and Compliance To claim FTC, the taxpayer must submit 
Form 67 electronically through the income tax e-filing portal before the end of the 
relevant assessment year. If filing an updated return under Section 139(8A), Form 67 
must be submitted before filing the return. The form includes basic taxpayer details, 
income earned abroad, taxes paid, and supporting documentation. Part A contains 
general information, while Part B captures refund and dispute details. The taxpayer must 
also provide a verification declaration and attach proof of foreign tax payment such as 
certificates or challans. For currency conversion, the Telegraphic Transfer Buying Rate 
(TTBR) of the State Bank of India is applied as on the last day of the month preceding the 
payment or deduction of tax. The relief applies against income tax, surcharge, and cess 
but not against penalties or fees. In cases where no DTAA exists, unilateral relief under 
Section 91 is allowed. The deduction is based on the lower of the Indian tax rate or the 
foreign tax rate when rates differ, and the Indian rate applies if both are the same. These 
provisions ensure equitable tax treatment for residents earning income abroad and help 
avoid multiple tax liabilities on the same income source, thereby promoting compliance 
with India’s international tax commitments.
Double Taxation Relief Where a person resident in India earns income which is also taxable in a 
foreign country, he may be liable to pay tax on such income in India as well. This results in a 
double taxation of the same income. To avoid such double taxation, the assessee can claim 
credit for the taxes paid outside India as Foreign Tax Credit (FTC). Where an assessee has paid 
taxes in a country or specified territory with which India has entered into a Double Taxation 
Avoidance Agreement (DTAA), the relief in respect of such taxes shall be allowed in accordance 
with the provision of Section 90 and Section 90A. This relief is allowed under a bilateral treaty. 
Unilateral relief is allowed in respect of taxes paid in the country or specified territory with 
which no DTAA exists. Such relief is allowed under Section 91. Where the Central Government 
has entered into a DTAA with the government of any foreign country, then in relation to the 
assessee to whom such agreement applies, the provisions of the Income-tax Act shall apply 
only to the extent they are more beneficial to that assessee. In other words, if the provisions 
of the DTAAs are more beneficial to such assessee, such beneficial provisions supersede the 
provisions of the Income-tax Act and vice-versa. Further, any term used in DTAA shall have the 
meaning as assigned to it under that agreement. However, if such a term is not defined in the 
DTAA, it shall be assigned the meaning as follows:
(a) Where such term is defined in the Act it shall have the meaning as assigned to it under Act and 
any explanation given by the government; (b) Where such term is not defined in the Act unless 
the context otherwise requires, it shall have the same meaning as given by the notification issued 
by the Central Government. The meaning so assigned should not be inconsistent with the 
provision of the Act or the agreement. Such term shall be deemed to have effect from the date 
on which said agreement came into force. Generally, a double taxation avoidance agreement 
includes the following articles: Article 1: Personal Scope Article 2: Taxes Covered Article 3: 
General Definitions Article 4: Resident Article 5: Permanent Establishment Article 6: Income from 
Immovable Property Article 7: Business Profits Article 8: Shipping and Air Transport Article 9: 
Associated Enterprises Article 10: Dividends Article 11: Interest Article 12: Royalties and Fees for 
Technical Services Article 13: Capital Gains Article 14: Independent Personal Services Article 15: 
Dependent Personal Services Article 16: Directors’ Fees Article 17: Artistes and Sportspersons 
Article 18: Non-Government Pensions Article 19: Government Service Article 20: Teachers, 
Students, and Trainees Article 21: Other Income Article 22: Capital Article 23: Relief from Double 
Taxation Article 24: Non-Discrimination Article 25: Mutual Agreement Procedure Article 26: 
Exchange of Information Article 27: Diplomatic and Consular Privileges Article 28: Entry into Force 
Article 29: Termination
Document to be furnished to claim the benefit of DTAA A non-resident to whom a DTAA applies 
shall be entitled to claim any relief under such DTAA only if he obtains a Tax Residency 
Certificate (TRC) of his being a resident of any foreign country from the government (tax 
authorities) of such country. Further, he shall be required to furnish some additional 
information in Form No. 10F electronically. A resident person can make an application in 
Form No. 10FA to the assessing officer to obtain a Tax Residency Certificate to claim relief 
under a DTAA entered into with the source country. The tax residency certificate to a resident 
person is provided in Form No. 10FB. In which year credit for foreign tax is allowed? A 
resident shall be allowed to claim credit of the foreign tax paid by him in the foreign country 
in the year in which income earned in the foreign country (on which tax has been paid) is 
offered to tax or assessed to tax in India. If the income to which such credit relates is offered 
to tax in more than one year, credit for the same shall be allowed in the proportion in which 
such income is offered to tax or assessed to tax in India in those years.
How much amount can be claimed as a foreign tax credit? India generally follows the Ordinary Credit 
method to allow relief for the taxes paid in the foreign country (source state). In this method, the 
credit to be allowed shall be lower of the tax attributable in India to such income taxed in the 
foreign country and the taxes paid on such income in that country. If the amount of foreign tax 
exceeds the amount of tax payable as per the provisions of the DTAA, such excess shall be 
ignored while calculating the foreign tax credit. The relief shall be allowed against the amount of 
income tax, surcharge, and cess payable under the Act except against any sum payable by way of 
interest, fee, and penalty. However, no credit shall be allowed in respect of tax paid outside India 
which is disputed in any manner by the assessee. What is the conversion rate to be taken to 
convert the foreign tax? The amount of foreign tax credit shall be computed by converting the 
currency of foreign tax at the telegraphic transfer buying rate on the last date of the month 
immediately preceding the month in which such tax has been paid or deducted. ‘Telegraphic 
Transfer Buying Rate’ in relation to foreign currency means the rate or rates of exchange adopted 
by the SBI for buying such currency, having regard to the guidelines specified by RBI from time to 
time for buying such currency, where such currency is made available to that bank through a 
telegraphic transfer.
Read more at: https://taxguru.in/income-tax/double-taxation-relief-in-india.html
Copyright © Taxguru.in