What is double taxation relief ?

Taxation being the main plank in the fiscal system of any country, it tries to cast its net wide enough so as to include all types of incomes within the schemes of taxation. It taxes not only the incomes derived from sources situated within the country by its own citizens as well as foreign nationals, but income derived by its nationals outside the country is also taxed.

SCRA Taxation Protections |

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Thus, there is an element of double taxation in this case, in the sense that the person concerned is paying income-tax here by virtue of his citizenship or residential status in this country and also subject to taxation in other country because he earns the income there. But it is also a universally accepted principle that the same income should not be subjected to taxation twice. It is this background that necessitates the avoidance of double taxation.

• In the case of an assessee who is a resident and who has paid tax on the same income in India and also in a foreign country, provision is made for granting appropriate relief by refund of a portion of tax so paid in each country in accordance with the agreement entered into with the foreign country concerned. If no such agreement exists, the income-tax authorities in India, on proof being shown of the payment of tax in the foreign country on the same income, will unilaterally give a deduction of tax from the total tax payable by the assessee in India, calculated on the income doubly assessed at the Indian rate or the foreign rate of tax, whichever is lower.


• Agreements which have been entered into with some foreign countries fall into two broad groups:

(a) Agreements for double taxation relief.

(b) Agreements for double taxation avoidance.

• In the former category of cases, the assessee has to pay full tax in both countries under the respective laws of the two countries. Thereafter, the portion of the tax doubly paid is refunded in both countries.

• In the latter category, specific provision is made as to the types of income which will be charged to tax in one country or the other so that even while making assessment, it is possible to determine the amount of tax which will be payable in each country. In such cases unlike the first category, no refund arises.

• The AO in India is competent to determine the income from sources in Pakistan for purposes of Indian assessment. Associated Cement Cos. v CIT [1983] 141 ITR (318 Bom).

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