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Unit 12: Advance Tax Planning and Tax Relief

12.3.3 Types of Relief Notes

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:

(a) If the person or company has been a resident of India in the previous year.
(b) If the person or company has paid income tax under the laws of the foreign
country.
(c) The same income should be gained and received by the tax payer outside India in the
previous year.
(d) The income should have been taxed in India and in a country with which India has
no tax treaty
2. Bilateral Relief: Under Section 90, Indian government provides protection against double
taxation by entering into a mutually agreed tax treaty (DTAA) with another country.
Under bilateral relief, protection against double taxation is provided either by completely
avoidance of overlapping tax or waiving a certain amount of the tax payable in India. Such
relief may be offered under two methods:
(a) Exemption method: This ensures complete avoidance of tax overlapping.
(b) Tax credit method: This provides relief by giving the tax payer a deduction from the
tax payable in India.
12.3.4 Method of Giving Relief from Double Taxation

Relief from double taxation is provided by abatement on the basis of mutual agreement between
two states concerned whereby the assessee is given relief by credit/refund in a particular manner
even though he is taxed in both countries. Relief may be in the form of credit for tax payable in
another country or by charging tax at lower rate.
The procedure to be adopted by the authorities for granting relief is to determine in the fi rst
place, the total income of the person liable to tax in India in accordance with the provisions of
the Income-tax Act, and then allow relief as per the terms of the tax treaty entered with the other
contracting country where the income has suffered double taxation.

Almost every treaty provides that the tax paid in the contracting country should be deducted
from the tax payable by the assessee in the assessing country on the income taxable in both the
countries. The treaty generally stipulates which country will grant relief and the manner and
extent of the relief on the various heads of income.

Example: Income from immovable property is taxed in the source country where it is
situated, but the country of residence of the owner can also tax the same income unless the tax
treaty between the countries expressly provides for exclusion of the property income from being
taxed in the country of residence of the assessee. Relief can, however, be claimed and given in
terms of tax treaty on providing proof of payment or at least proof of assessment.
Relief cannot be granted unless the income which has been taxed in one of the contracting
countries has also suffered tax in the other contracting country. Proof has to be provided of the
income having suffered double taxation. If there is no tax treaty with the country levying double
tax, then relief can be granted.

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