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Unit 14: Advance Tax Planning and Tax Relief

property is located) whether the income earner is a resident in that country or not. On the other Notes
hand, the income earner may be taxed on the basis of his/her residential status in that country.

Example: If a person is resident of a country, he may have to pay tax on any income
earned outside that country as well. Further, some countries may follow a mixture of the above
two rules.
Thus problem of double taxation arise if a person is taxed in respect of any income on the basis
of source of income rule in one country and on the basis of residence in other country or the basis
of mixture of above two rules.

In India, the liability under the Income tax Act arises on the basis of the residential status of the
assessee during the previous year. Hence, if the assessee is resident in India, he/she has to pay
tax not only on the income which is received in India but also on that income which accrues,
arises outside India or received outside India. Thus he/she become liable to pay double taxes.
This puts unnecessary and prohibitive burden on the tax-payer. If the tax rates are sufficiently
high, it may even leave him/her with a negative balance. It also has harmful effects on the trade
and services as well as on movement of capital and people across countries. The relief against
such double taxation in India has been provided under Section 90 and Section 91 of the Income
Tax Act. They contain two ways of double taxation relief.
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.

Notes 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.

14.3.3 Types of Relief

Double taxation relief in India is of two type’s Unilateral relief and Bilateral relief which are as
follows:
1. 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:
If the person or company has been a resident of India in the previous year.

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