A condition in which two or more taxes may need to be paid for the same asset, financial transaction or income is known as double taxation. It generally takes place due to the overlapping of the tax laws and regulations of different countries. Thus, double taxation occurs when a taxpayer is charged income tax, both at his country of residence as well as in the country where the income is generated. Taking into account the laws of income tax in India, a non-resident becomes liable to tax payment in India, given that it is the place where the income is generated. Moreover, he has to additionally bear the burden of tax payment in his own country, by virtue of the inclusion of the same income in the 'total world income', which forms the tax base of the country where he resides.
To effectively deal with the problems related to double taxation, Central Government, under Section 90 of the Income Tax Act of1961, has been certified to enter into Double Tax Avoidance Agreements (DTAA) with other countries. These agreements are meant to alleviate various problems related with double taxation. So far, India has entered into Double Taxation Avoidance Agreements with 65 countries, including U.S.A, Canada, U.K, Japan, Germany, Australia, Singapore, U.A.E and Switzerland. The tax treatises offers relaxation from double taxation, by providing release or by providing credits for taxes paid in one of the countries.
Under Section 90 and 91 of the Income Tax Act, relief against double taxation in India is provided in two ways:
Double Taxation Relief In India
Double taxation relief in India is of two type’s Unilateral relief and Bilateral relief.
Unilateral Relief
Under Section 91, Indian government can relieve an individual from burden of double taxation, irrespective of whether there is a DTAA between India and the other country concerned or not, under certain conditions. Cases where a person enjoys double taxation relief as per the unilateral relief scheme are:
