Defining double taxation and why the issue of double taxation arises? 

Usually, double taxation means taxation of the same income of an individual in more than one country. 

Here, the taxpayer should opt for income tax return filing before the due date. The fundamental reason behind double taxation is that taxation rules for taxing income vary from country to country across the globe. Generally, there are two primary rules of income taxation as given below;

Source rule

Under the source rule, the income might be subjected to tax in the country where the source of that income exists (such as where the business is located or where the property or asset is located) despite the fact that the income-earner is a resident of the country or not.

Residence rule

Under the residence rule, a person would be taxed based on his/her residential status in a country. Usually, if an individual is a resident of a given country, then he/she will have to pay tax on any income earned outside that country as well.

Though many countries such as India follow a blend of the rules mentioned above. Hence, the issue of double taxation comes to the fore if an individual is taxed in respect of any income based on the source of that income in one country and based on the second rule in another country or on the base of a blend of the rules as mentioned above.

Ways by which one can overcome the issue of double taxation

In order to overcome that privation faced by taxpayers due to double taxation, countries usually choose two ways as given below;

–      Bilateral relief.

–      Unilateral relief.

Under the bilateral relief, two countries can sign the double taxation avoidance agreements (DTAAs) so that the same income cannot be taxed twice on the taxpayers. Here, rules are being formulated for taxing the income by the country of source and country of residence for several types of income. These rules are named as ‘Article’ in DTAA.

It is often challenging to make an agreement for the avoidance of double taxation with all the countries across the world. Here, the taxpayers’ privation will be worrisome, mostly when the same income is being taxed on the tax payer in more than one country and when such countries do have any bilateral agreement such as DTAA. For those taxpayers, usually, the country of residence offers some respite from double taxation that is widely known as ‘unilateral relief.’

Provisions concerning relief from double taxation in India.

Bilateral relief – the provisions concerning bilateral relief can be found in section 90 of the IT (income tax) act, which empowers the central government to enter into an agreement or form a treaty with the government of another country for.

– Granting double taxation relief for circumventing double taxation without creating chances for non-taxation or narrowed taxation via tax evasion or avoidance (consisting of treaty shopping arrangements directed for acquiring reliefs offered in the stated agreement for the indirect benefits to residents of any other country or territory).

– Reciprocal exchange of information to prevent evasion and avoidance of income tax.

– Retrieval of income tax.

Suppose all the conditions as mentioned earlier are being met. In that case, such individual should be entitled to a deduction from the tax payable income by him/her of a sum calculated on such income that is doubly taxed as per the tax rate in India or the tax rate of the given country, whichever among them is less or at the tax rate of India if both of them are equal. GST registration in India is equally crucial if your turnover goes beyond the stated threshold limits in India.  

Unilateral relief

– the provisions concerning ‘unilateral relief’ can be found in section 91 of the IT (income tax) act, which can be availed if the below-given conditions are being met.

– The taxpayer has to be a resident of India.

– Some of his/her income emanated or arisen to him/her outside India.

– With respect to such income, the tax will have to be paid by deduction or otherwise according to law related to tax in the foreign country in question in that the income outside India has emanated.

– There should be no mutual arrangement for relief or avoidance from the double taxation with the given country.

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