CA Final · Direct Tax Laws & International Taxation

Double Taxation Relief for CA Final Direct Tax Laws

Double taxation relief eases tax on income taxed in two countries. Under section 91, a resident who paid tax abroad gets credit = doubly taxed income × the lower of the Indian average rate and the foreign rate, where no treaty exists. Under a DTAA (section 90), follow the treaty's method.

What this chapter covers

This chapter deals with one problem: the same income is taxed in India and in another country. It covers why that happens, and the two routes the law gives to reduce the burden. Unilateral relief under section 91 applies when India has no tax treaty with the other country. Bilateral relief applies when a Double Taxation Avoidance Agreement (DTAA) exists, under section 90. Section 90A covers agreements with specified associations.

The chapter also covers the working part: how to compute the foreign tax credit, why it is capped, and what you must furnish to claim it under Rule 128. That includes Form 67, a statement of foreign income and tax, and proof of payment or deduction of tax. Form 67 must be furnished on or before the due date for furnishing the return of income for the tax year in which the foreign income is offered to tax in India. Where the rules permit, it may also be furnished with an updated return. Computation questions are usually short and rule-driven, so the marks are easy to secure once the method is clear.

This chapter sits inside International Taxation and links to residential status, income that accrues or arises in India, and the taxation of non-residents. It connects to tax treaties, withholding tax on payments to non-residents, and transfer pricing. A case scenario on any of these often ends with a question on relief. You need residential status and the scope of total income firmly in place before you start.

Double taxation relief is a compact chapter with a clear method, which makes it a good place to score full marks in both the case-scenario MCQs and the written answers. Questions test whether you can choose between the Act and the treaty, apply the lower-of rule, and state conditions precisely. Because these skills also feed into international taxation case studies, time spent here pays back in several parts of the paper. It also helps in Paper 6, where tax issues sit inside a larger business case.

Double Taxation Relief: topics in the order to study them

1Double Taxation: Meaning and Methods of ReliefStart here to understand why double taxation arises and the exemption and credit methods, since every later topic builds on them.
2Unilateral Relief under Section 91Study this next because it is the route when no treaty exists, and its conditions are simple to learn first.
3Bilateral Relief under Tax Treaties (DTAA)Move to treaties (section 90) once unilateral relief is clear, so you can compare the two and see that the treaty decides whether relief is by exemption or credit.
4Foreign Tax Credit: Computation and LimitsThis is the numerical core and needs the rules of both relief routes behind you before you practise sums.
5Claiming Relief: Rule 128 and Form 67Finish with the procedure, as it only makes sense once you know what is being claimed and how it is computed.

How to prepare Double Taxation Relief

Treat this chapter as a concept first, then a computation, then a procedure. Do not start with sums.

Read the meaning of double taxation and write down the two main methods of relief, exemption and credit, in your own words, with one line on when each is used. Unilateral relief under section 91 is by credit. A treaty specifies its own method.
Learn the conditions for unilateral relief under section 91 as a checklist: who can claim, what kind of income, and what tax must have been paid abroad.
For treaty relief, learn how a treaty allocates taxing rights, that the treaty specifies the method (exemption or credit), and the rule that you may choose the Act or the treaty, whichever is more beneficial to you.
Practise foreign tax credit sums source by source. Under section 91, compute the average rate of tax on total income, then compare it with the foreign rate of tax. Apply the lower of the two rates to the doubly taxed income to get the credit. This lower-of-rates rule is the section 91 rule. In treaty cases, follow the method the treaty prescribes. Rule 128 also caps the credit at the lower of the foreign tax paid and the Indian tax on that income.
Write the relief rule as a fixed answer pattern: provision, facts, computation, conclusion. Use it for every written answer.
Learn the Rule 128 requirements as a short list: Form 67, the statement of foreign income and tax, proof of payment or deduction of tax, and furnishing Form 67 on or before the due date for furnishing the return of income for the tax year (it may also go with an updated return where permitted). Revise it with the computation topic.
Finish with case-scenario MCQs that mix residential status, treaty rates and credit, and check each wrong answer against the condition you missed.

Common mistakes in Double Taxation Relief

Giving the full foreign tax paid as credit without applying the cap.
Fix: Always compare the Indian average rate with the foreign rate, apply the lower one to the doubly taxed income, and write a one-line reason. In treaty cases, also follow the treaty's method.
Applying unilateral relief when a DTAA exists, or the reverse.
Fix: Make the first line of your answer say whether a treaty exists, then choose the route.
Pooling income and foreign tax from different sources into one credit computation.
Fix: Prepare a small table with one row per source of income, compute credit row by row, and total only at the end.
Computing Indian tax on the foreign income as a standalone computation instead of using the average rate.
Fix: Work out the average rate of tax on total income, compare it with the foreign rate, and apply the lower rate to the foreign income.
Ignoring the procedure and documents in Rule 128, including Form 67.
Fix: Keep a short list: Form 67, statement of foreign income and tax, proof of payment or deduction, and furnishing Form 67 by the due date for the return of income for the tax year. Revise it with the computation topic.
Skipping residential status before discussing relief.
Fix: Confirm residential status first, because it decides what income is taxable in India and whether relief is needed at all.

Last-day revision: Double Taxation Relief

Double taxation arises when the same income is taxed in two countries, usually on source and residence grounds.
Treaty relief under section 90 is by exemption or credit, as the DTAA provides. Unilateral relief under section 91 is by way of credit, that is, a deduction from Indian tax.
Unilateral relief under section 91 applies where India has no DTAA with the other country. It is available only to a resident who has paid tax abroad on income that accrued or arose outside India (and is not deemed to accrue in India) and is also taxed in India.
Treaty relief under section 90 applies where a DTAA exists. Section 90A covers agreements with specified associations. You may opt for the Act or the treaty, whichever is more beneficial.
The method, exemption or credit, depends on what the treaty specifies. In treaty cases, follow the treaty's method.
Under section 91 (unilateral relief), credit = doubly taxed income × the lower of the Indian average rate and the foreign rate of tax. This lower-of-rates cap is the section 91 rule, not a rule for every case.
Indian average rate = Indian tax on total income ÷ total income. Indian tax on the doubly taxed income = Indian average rate × foreign income.
Rule 128 also limits credit: it cannot exceed the lower of the foreign tax paid and the Indian tax payable on that income.
Compute credit separately for each source of income.
Credit is allowed for foreign tax paid (or deducted) on income that is taxed in India. Claim it in the year the income is offered to tax in India. If the foreign tax is paid or deducted in a later year, the credit is allowed for the year in which the tax is paid or deducted, and Form 67 is furnished on or before the end of the tax year immediately following that year.
Rule 128 requires Form 67, with the statement of foreign income and tax and proof of payment or deduction of tax.
Furnish Form 67 on or before the due date for furnishing the return of income for the tax year in which the foreign income is offered to tax in India. Where the rules permit, it may also be furnished with an updated return.
Check residential status first, as relief questions depend on it.
Write every written answer in provision, facts, computation and conclusion order.

Double Taxation Relief practice questions

Double Taxation Relief in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Double Taxation Relief: frequently asked questions

What is the difference between unilateral and bilateral relief?

Unilateral relief is given under section 91 when India has no tax treaty with the other country. It is open only to a resident who has paid tax abroad on income that accrued outside India (and is not deemed to accrue in India) and is also taxed in India. Bilateral relief is given under a DTAA that India has signed with that country, under section 90. In both cases the aim is to reduce the tax burden on the same income.

Can I choose between the Act and a DTAA?

Yes, where a treaty applies, you can follow whichever is more beneficial to you. The treaty also decides whether relief is by exemption or credit. In an answer, state this choice clearly and show the result under the route you pick.

How is the foreign tax credit limited?

Under section 91, the credit is the doubly taxed income multiplied by the lower of the Indian average rate and the foreign rate of tax. The Indian average rate is Indian tax on total income divided by total income. Work it out separately for each source of income. In treaty cases, follow the treaty's method, and remember Rule 128 caps the credit at the lower of the foreign tax paid and the Indian tax on that income.

Is Rule 128 important for the exam?

Yes. It sets out what you must furnish to claim the credit: Form 67, a statement of foreign income and tax, and proof of payment or deduction of tax. Form 67 is furnished on or before the due date for furnishing the return of income for the tax year, and may also go with an updated return where permitted. Learn it as a brief list, and keep it linked to the computation.