Q.31 What is Double Taxation? Write a current note on the situation of the Double Taxation policy followed by India.

Ans. The situation of double taxation occurs when an individual is required to pay two or more taxes for the same income, asset, or financial transaction in different countries—mainly due to overlapping tax laws and regulations of the countries where an individual operates his business. When an Indian businessman makes a profit or some other type of taxable gain in another country, he may be in a situation where he will be required to pay a tax on that income in India, as well as in the country in which the income was generated. To protect Indian tax payers from this unfair practice, the Indian government has entered into tax treaties, known as Double Taxation Avoidance Agreement (DTAA) with 65 countries, including U.S.A, Canada, U.K, Japan, Germany, Australia, Singapore, U.A.E, and Switzerland. DTAA ensures that India’s trade and services with other countries, as well as the movement of capital are not adversely affected. Such agreements are known as “Double Tax Avoidance Agreements” (DTAA) also termed as “Tax Treaties” (TTs). The statutory authority to enter into such agreements is vested in the Central Government by the provisions contained in Section 90 of the Income Tax Act.

The Income Tax relief against double taxation is provided in two ways:

(i) Unilateral Relief: Under Section 91, the Indian government can relieve an individual from double taxation irrespective of whether there is a DTAA between India and the other country concerned. Unilateral relief may be offered to a tax payer if:

a. The person or company has been a resident of India in the previous year.

b. The same income must be accrued to and received by the tax payer outside India in the previous year.

c. The income should have been taxed in India and in another country with which there is no tax treaty.

d. The person or company has paid tax under the laws of the foreign country in question.

(ii) Bilateral Relief: Under Section 90, the Indian government offers protection against double taxation by entering into a DTAA with another country, based on mutually acceptable terms. 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.

In this regard, India articulated the GAAR (General Anti-Avoidance Rule) in 2010 like several other countries to be enforced from April 2017 (as per the Union Budget 2017–18).