How To Claim Double Taxation Relief In Absence Of Dtaa?

Imagine a situation wherein you own a residential property in a foreign country that you have rented out. The rental income that you earn on the property will be taxable in such a country due to source-based taxation. But since you are a resident in India, your rental income will be taxable in India also. This is because as per the domestic tax laws of India a

resident is taxed on his global income irrespective of where it is earned. Thus, you will end up paying tax twice on the same income. This scenario is termed as “Double Taxation”. To provide relief to the taxpayers from such double taxation India has entered into double tax avoidance agreements (DTAAs) with many countries. Section 90 of the Income Tax Act, 1961 empowers the Central Government to enter into such agreements. It is important to understand how double taxation relief is provided under Section 90 when an agreement exists with a foreign country. In this article, we are going to discuss how double taxation relief can be availed if the source country (i.e. the country in which your origin of income is located) doesn’t have a DTAA with India. Section 91 of the Income Tax Act, 1961 guides as to how an Indian resident can claim double taxation relief when the country in which tax is paid doesn’t have a DTAA with India.

Conditions for Claiming Relief

A resident can claim relief by way of

foreign tax credit under section 91 in case the following conditions are fulfilled.

The resident has earned an income from a source located outside India.
Such income is not deemed to accrue or arise in India.
The tax has been paid on such income by the resident in that other country. The tax can either be paid by way of tax withholding or otherwise.
Such another country doesn't have a DTAA with India.

How to Calculate Relief

An eligible resident is allowed a deduction from the Income Tax payable by him on his Total Income in India and such deduction is calculated by multiplying

lower of the below tax rates by the doubly taxed income:

Indian rate of tax to be calculated as a percentage by dividing the tax on total income in India by the Total Income in India. The total income shall be computed after including the foreign income and considering the reliefs and deductions (such as Chapter VI-A deductions, set-off of losses) that are available under the Income Tax Act except for relief available under this section.
Rate of tax of the foreign country to be calculated by dividing the tax paid in the foreign country by the Total Income assessed in such a country.

In case the tax rate rates of both countries come out to be equal, the Indian tax rate shall be taken into account.

Example of Relief Under Section 91

Let us take an example where Mr. X is a resident in India. For AY 2020-21, he earned some income from a country “Y” with which India doesn’t have any DTAA. His details for income earned by him in India and the country “Y” are as follows:

Particulars	Amount in INR
Income from business carried out in India	6,00,000
Rental income earned from property situated in country “Y”	2,00,000
Interest income earned on fixed deposits in India	50,000
Amount invested by Mr. X in tax saver FDs eligible under Section 80C	80,000

The tax rate in the country “Y” is 10%. Now, let us understand how we can calculate double taxation relief as per Section 90 of the Income Tax Act. Let us first calculate the Total Income of Mr. X.

Particulars	Amount in INR
Income from House Property Gross Annual Value Less: Standard Deduction @ 30% Income from House Property	2,00,000 60,000 1,40,000
Profits and Gains from Business or Profession	6,00,000
Income from Other Sources Interest income earned on fixed deposits in India	50,000
Gross Total Income	7,90,000
Less: Deductions under Chapter VI-A Section 80C	80,000
Total Income	7,10,000

Now, following the income tax slab rates for individual residents for AY 2020-21, the total tax comes out to be Rs. 56,680. Let us calculate the tax relief available to Mr. X.

Tax Rate in India = 7.98% (i.e. Rs. 56,680/ Rs. 7,10,000 * 100)
Tax Rate in country Y = 10%.
Doubly Taxed Income = Rs. 1,40,000 (Income from House Property)
The tax rate to be considered for calculating tax relief is 7.98% being lower of the two tax rates.
Tax Relief = Rs. 1,40,000 * 7.98% = Rs. 11,176

This means that out of the total tax payable by Mr. Y of Rs. 56,680 a relief of Rs. 11,176 can be claimed as a deduction under Section 91 of the Income Tax Act. Hence, the final tax liability of Mr. Y will be Rs. 45,504 (i.e. Rs. 56,680 - Rs. 45,504).

Understand the procedural aspects relating to claims of foreign tax credit!

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Frequently Asked Questions

Common questions about Double Taxation Relief Without DTAA: Indian Taxation.

Double taxation occurs when the same income is taxed by two or more countries or tax jurisdictions. It typically arises when an individual or company earns income in a foreign country and is required to pay taxes in both the source country (where the income is earned) and the residence country (where the individual or company is a tax resident).

A DTAA (Double Taxation Avoidance Agreement) is a tax treaty signed between two countries to prevent double taxation and provide tax relief to taxpayers who are residents of one or both countries. These agreements aim to eliminate or mitigate double taxation by allocating taxing rights between the two countries and providing mechanisms for tax credits or exemptions.

Section 91 of the Income Tax Act, 1961 provides relief from double taxation for Indian residents who earn income from a foreign country that does not have a DTAA with India. It allows for a deduction from the Indian income tax payable, calculated based on the lower of the Indian tax rate or the foreign country's tax rate, applied to the doubly taxed income.

To claim double taxation relief under Section 91, the following conditions must be met: (1) The resident has earned income from a source located outside India, (2) The income is not deemed to accrue or arise in India, (3) Tax has been paid on the income in the foreign country, and (4) The foreign country does not have a DTAA with India.

The relief under Section 91 is calculated by multiplying the lower of the Indian tax rate or the foreign country's tax rate by the doubly taxed income. The Indian tax rate is calculated by dividing the Indian tax payable on the total income by the total income, while the foreign tax rate is calculated by dividing the foreign tax paid by the total income assessed in the foreign country.

No, the relief under Section 91 cannot exceed the Indian income tax payable. The deduction from the Indian tax payable is limited to the lower of the Indian tax rate or the foreign country's tax rate applied to the doubly taxed income.

Yes, to claim relief under Section 91, it is necessary to provide proof of tax payment in the foreign country, such as tax deduction certificates or tax returns filed in the foreign country.

No, relief under Section 91 cannot be claimed for income earned in a country that has a DTAA with India. In such cases, the provisions of the DTAA will apply for providing relief from double taxation.

The relief under Section 91 is generally available for all types of income earned from a source located outside India, provided the conditions mentioned in Section 91 are met. However, certain types of income may be subject to specific provisions or exceptions under the Income Tax Act or the respective tax laws of the foreign country.

No, the relief under Section 91 is specifically available to individuals who are residents of India as per the provisions of the Income Tax Act, 1961. Non-residents cannot claim relief under this section.