What is DTAA?

Double Taxation Avoidance Agreements is a treaty signed between two countries, which,
through the elimination of international double taxation, promotes the exchange of goods,
services, and investment of capital between the two countries.

This implies that there are consented tax rates and jurisdiction on specified kinds of incomes
arising in one country to a tax resident of another nation. The taxpayers in these 88 countries
can avoid being taxed twice for the same income.

Double taxation is an issue related to the taxation of income that crosses boundaries. DTAA
can either cover all types of income or can target a specific type of income depending upon the
types of businesses/holdings of citizens of one country in another. The following categories are
covered under the Double Taxation Avoidance Agreements (DTAA):

● services
● salary
● property
● capital gains
● savings/fixed deposit accounts

Benefits of Double Taxation Avoidance Agreements

Sections 90 and 91 under the Income Tax Act 1961 offers specific relief to taxpayers to avoid
double taxation. Section 90 deals with those provisions involving taxpayers who have paid tax to
another country with which India has a DTAA. Section 91 is for those countries with which India
does not have a DTAA. In effect, India provides relief to both types of taxpayers.
Some of the major benefits of Double Taxation Avoidance Agreements (DTAA) are mentioned
below:

● The countries under the DTAA are provided relief from double taxation. Relief on double
taxation is provided by the exemption of incomes earned abroad from tax in the resident country
or by providing credit to the extent taxes that have been already been paid abroad.

● In some cases, the DTAA also provide concessional rates of tax.

● DTAA can become an incentive for even legitimate investors to route investments
through low-tax regimes to sidestep taxation. This leads to a loss of tax revenue for the country.

● DTAA also provides tax certainty to the various investors and businesses of both the
countries through the clear allocation of taxing rights between the contracting states by
Agreement.
In the case of Vodafone International Holdings BV v. Union of India, the court examined the issue
of double taxation under section 90-91 of the Indian Taxation Act. The court ruled that the
provisions of section 90-91 provide relief to taxpayers from double taxation and clarified the
scope and applicability of these provisions.

Similarly, in the case of Nokia Networks OY v. Deputy Commissioner of Income Tax, the court
discussed the issue of double taxation for the financial year 2006-2007. The court's ruling
provided guidance on the interpretation and implementation of section 90-91 to prevent double
taxation.

These cases highlight the importance of section 90-91 in resolving double taxation issues and
ensuring fair taxation for taxpayers.

Section 90 and Section 91 of the Income Tax Act, 1961, provide provisions for
double taxation relief in India. These sections aim to avoid the burden of double taxation on
taxpayers who earn income in one country and are also liable to pay taxes on that income in
another country.

Here's a detailed explanation of Section 90 and Section 91:

1. Section 90: Agreement with foreign countries

Section 90 deals with situations where the Indian government has entered into a Double
Taxation Avoidance Agreement (DTAA) with another country. A DTAA is an agreement between
two countries that aims to eliminate double taxation of income earned in either country.

Key features of Section 90 are as follows:

a. Relief from double taxation: Under this section, if an individual or entity is a resident of India and
has paid taxes on income that is also taxable in another country with which India has a DTAA,
they can claim relief from double taxation. The relief can be in the form of an exemption,
deduction, credit, or the equivalent of tax paid in the foreign country.

b. Method of relief: The section outlines two methods for granting relief:

i. Exemption method: The income that has been taxed in the foreign country is fully
exempted from tax in India
.
ii. Tax credit method: The tax paid in the foreign country is allowed as a credit against the tax
liability in India. The taxpayer is required to pay tax only on the balance amount, if any, after
deducting the tax credit.
c. Conditions for availing relief: To claim relief under Section 90, the taxpayer needs to
meet certain conditions, such as:

i. Being a resident of India

ii. Being eligible to claim the benefits of the DTAA
iii. Furnishing the required documents, such as a Tax Residency Certificate (TRC) from the
foreign country and a self-declaration of the income and tax paid

d. Tax residency certificate (TRC): A TRC is a document issued by the tax authorities of the
foreign country where the taxpayer resides. It certifies that the person is a resident of that
country for tax purposes. A TRC is often required to avail the benefits of a DTAA.

2. Section 91: Relief in cases where no agreement exists

Section 91 deals with situations where a taxpayer is a resident of India but earns income from a
country with which India does not have a DTAA. In the absence of a DTAA, the provisions of
Section 91 come into play.

Key features of Section 91 are as follows:

a. Relief from double taxation: Under this section, if a taxpayer is a resident of India and has paid
taxes on income in a country with which India does not have a DTAA, they can claim relief from
double taxation.

b. Method of relief: The relief is granted by allowing a deduction from the Indian tax payable,
which is calculated as follows:

i. The amount of income on which tax is paid in the foreign country is included in the total
income for Indian tax purposes.
ii. A deduction is allowed for the amount of tax paid in the foreign country or the Indian tax
payable on that income, whichever is less.

c. Conditions for availing relief: To claim relief under Section 91, the taxpayer needs to meet
certain conditions, such as:

i. Being a resident of India

ii. Earning income from a country with which India does not have a DTAA
iii. Furnishing the necessary documents and information to support the claim for relief

It's important to note that the specific provisions and conditions for claiming double taxation
relief may vary depending on the DTAA or the absence of a DTAA between India and the
particular country involved. Taxpayers are advised to consult tax professionals or refer to the
relevant tax treaties and laws for detailed and accurate information based on their specific
circumstances.,