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Direct Tax Laws & International Taxation · Double Taxation Relief

Unilateral Relief under Section 160 (Income-tax Act, 2025)

Updated 5 October 2026 · Fact-checked

Unilateral relief is relief India gives on its own to a resident who pays tax abroad on income that India also taxes, where India has no agreement with that country. You work out the doubly taxed income, compare the Indian average rate with the foreign rate, and deduct relief at the lower rate.

Understand Unilateral Relief under Section 159

Double taxation happens when the same income is taxed in two countries. India taxes a resident on global income. A foreign country taxes the income that arises in its territory. So a resident can pay tax twice on one receipt.

India gives relief in two ways. If India has an agreement (a tax treaty or DTAA) with the other country, the bilateral relief under Section 159 of the Income-tax Act, 2025 applies. If there is no agreement with that country, unilateral relief under Section 160 applies. It is called unilateral because India grants it alone, without the other country's consent.

The relief is a credit against Indian tax, not a deduction from income. You compute Indian tax in full on total income, including the foreign income. Then you reduce that tax by the relief.

The relief is capped. It is the lower of the Indian rate of tax and the foreign rate of tax, applied to the doubly taxed income. So India never refunds foreign tax that is higher than what India would have charged on that income. The excess is simply lost for Indian purposes.

The exam tests three things: whether the conditions are met, whether you pick the correct rates, and whether you use the correct base for each rate.

Key rules to remember

Conditions for relief
Resident in India + income accrues or arises outside India + income taxed in India and in the foreign country + no agreement under Section 159 with that country + tax paid in that country
All of these conditions must hold. If an agreement exists with the country, you do not use Section 160; the treaty relief under Section 159 applies. The relief is given against your Indian income-tax liability.
Indian rate of tax
Indian rate = Indian tax payable on total income ÷ Total income
This is the average rate, not the marginal rate. Use the tax figure the question gives, or compute it first.
Foreign rate of tax
Foreign rate = Foreign tax actually paid (after reliefs due there) ÷ Whole income assessed in that country
The denominator is the entire income taxed abroad, not only the part that is doubly taxed.
Relief amount
Relief = Lower of (Indian rate, Foreign rate) × Doubly taxed income
Doubly taxed income is the income included in Indian total income that was also taxed abroad.
Overall cap
Relief cannot exceed the Indian tax on the doubly taxed income
The lower-rate rule already ensures this. Foreign tax in excess is not refunded or carried forward.

How to solve Unilateral Relief under Section 159 questions

Use this order for any question on unilateral relief. It keeps the rate and base straight.

  1. 1Check the facts: is the assessee resident in India, does the income accrue or arise outside India, is it taxed in India and in the foreign country, and does India have an agreement under Section 159 with that country? If an agreement exists, stop and apply treaty relief under Section 159 instead.
  2. 2Confirm that tax was actually paid in the foreign country, by deduction or otherwise. Use the amount after reliefs available there.
  3. 3Compute total income and Indian tax payable on it. Include the foreign income in the computation.
  4. 4Find the Indian average rate: Indian tax ÷ total income.
  5. 5Find the foreign rate: foreign tax paid ÷ whole income assessed in the foreign country.
  6. 6Identify the doubly taxed income, meaning the foreign income included in Indian total income.
  7. 7Relief = lower rate × doubly taxed income. Check it does not exceed the Indian tax.
  8. 8Net Indian tax = Indian tax − relief. State any excess foreign tax as not relievable.

Quickest way: Lower-rate shortcut

When to use it: Use it when the question gives Indian tax, foreign tax and the income figures directly, and you only need the relief amount.

  1. Write two rates side by side: Indian tax ÷ total income, and foreign tax ÷ foreign assessed income.
  2. Circle the smaller rate.
  3. Multiply it by the doubly taxed income.
  4. Subtract the result from Indian tax and note any excess foreign tax.

Common mistakes in Unilateral Relief under Section 159

  • Applying Section 160 when an agreement exists with the foreign country.

    Students see foreign tax paid and jump to the relief formula without reading the country facts.

    Fix: Check first whether there is an agreement. Section 160 is only for countries with no agreement. Where an agreement exists, Section 159 (treaty relief) applies.

  • Giving relief for the full foreign tax paid.

    Students treat the relief as a refund of foreign tax.

    Fix: Relief is the lower of the two rates times the doubly taxed income. Foreign tax above that is lost.

  • Using the marginal Indian rate instead of the average rate.

    Students read the slab rate off the tax table.

    Fix: Divide total Indian tax by total income to get the average rate.

  • Dividing foreign tax by only the doubly taxed income to get the foreign rate.

    Students assume both rates use the same base.

    Fix: The foreign rate uses the whole income assessed in the foreign country as the denominator.

  • Deducting the foreign tax from income instead of from tax.

    Students mix up the credit method with a deduction method.

    Fix: Compute Indian tax on full total income first, then reduce the tax by the relief.

  • Claiming relief for a non-resident.

    Students ignore the residency condition.

    Fix: Check residential status first. The relief is for a resident in India for the tax year.

Worked examples

Example 1

Meera is a resident individual. Her total income for the tax year 2026-27 is ₹20,00,000, which includes ₹4,00,000 earned in Country X. India has no agreement with Country X. Country X taxed the ₹4,00,000 and she paid ₹80,000 there. Indian tax on her total income is ₹3,00,000. Find the relief and her net Indian tax.

Show the solution
  1. Meera is resident, the income arose outside India, it is taxed in both countries, there is no agreement and tax was paid. Section 160 applies.
  2. Indian rate = 3,00,000 ÷ 20,00,000 = 15%.
  3. Foreign rate = 80,000 ÷ 4,00,000 = 20%.
  4. Lower rate = 15%.
  5. Relief = 15% × 4,00,000 = ₹60,000.
  6. Net Indian tax = 3,00,000 − 60,000 = ₹2,40,000.
  7. Foreign tax of ₹20,000 (80,000 − 60,000) is not relievable.

Answer: Relief is ₹60,000. Net Indian tax is ₹2,40,000. Excess foreign tax of ₹20,000 is not relieved.

Example 2

Zenith Ltd is an Indian resident company with total income of ₹50,00,000. Its Indian tax payable, including surcharge and cess, is taken as ₹12,50,000 (an assumed figure, which is 25% of total income). The total income includes ₹12,00,000 of business income earned in Country Y, with which India has no agreement. Country Y assessed the ₹12,00,000 and charged tax of ₹2,40,000, which Zenith paid. Compute the relief.

Show the solution
  1. The conditions are met: resident company, foreign income, taxed in both countries, no agreement, foreign tax paid. Section 160 applies.
  2. Indian rate = 12,50,000 ÷ 50,00,000 = 25%.
  3. Foreign rate = 2,40,000 ÷ 12,00,000 = 20%. The denominator is the whole income assessed in Country Y, which here is ₹12,00,000.
  4. Lower rate = 20%.
  5. Doubly taxed income = ₹12,00,000, because the whole Country Y income is included in Indian total income and was taxed abroad.
  6. Relief = 20% × 12,00,000 = ₹2,40,000.
  7. Net Indian tax = 12,50,000 − 2,40,000 = ₹10,10,000.
  8. The foreign tax of ₹2,40,000 is fully relieved, so there is no excess foreign tax.

Answer: Relief is ₹2,40,000. Net Indian tax is ₹10,10,000. No foreign tax is left unrelieved.

Exam tips

  • Read the country facts first. Words like 'no agreement' or 'no DTAA' signal Section 160. If the question mentions a treaty, use Section 159 instead.
  • Write both rates with their bases. Examiners give marks for the correct denominator even if the final figure slips.
  • Show the comparison of rates and state which is lower. Then conclude on the excess foreign tax.
  • If the question gives Indian tax, use it. If not, compute tax on total income including the foreign income before finding the average rate.
  • In theory questions, list the conditions and then contrast with bilateral relief under Section 159 in a short list of points.

Practice questions from Double Taxation Relief

Unilateral Relief under Section 159: frequently asked questions

What is the difference between unilateral and bilateral relief?

Bilateral relief comes from a tax treaty between India and another country and is dealt with in Section 159 of the Income-tax Act, 2025. Unilateral relief under Section 160 applies when there is no such agreement. In both cases India reduces its tax for foreign tax paid, but the treaty sets the terms in bilateral relief.

Who can claim unilateral relief under Section 160?

A person who is resident in India for the tax year. The income must accrue or arise outside India and be taxed in India and in the foreign country. India must have no agreement under Section 159 with that country, and tax must have been paid there.

How do you calculate unilateral relief?

Compute the Indian average rate and the foreign rate. Take the lower of the two and apply it to the doubly taxed income. The result is deducted from Indian tax.

Is excess foreign tax refunded or carried forward?

No. If the foreign rate is higher than the Indian rate, relief is limited to the Indian rate. The extra foreign tax is not refunded and is not carried forward under this section.