Advanced Direct Tax Laws and Practice · Double Taxation Avoidance Agreement (DTAA)

Section 159 Income-tax Act 2025: Agreements with Foreign Countries

Updated 11 October 2026 · Fact-checked

Section 159 of the Income-tax Act, 2025 lets the Central Government enter into agreements with foreign countries or specified territories, and notify provisions to implement them. Specified associations can also agree with their counterparts in a specified territory under sub-section (2). The agreements may cover relief, avoidance of double taxation, exchange of information and recovery of tax. Under sub-section (4), the Act applies to the extent it is more beneficial to the assessee.

Understand Agreements with Foreign Countries under Section 159

Double taxation arises when two countries tax the same income. India solves part of this problem by signing treaties, called Double Taxation Avoidance Agreements (DTAAs). Section 159 is the source of that power in the Income-tax Act, 2025.

Under sub-section (1), the Central Government may enter into an agreement with the Government of any other country or any specified territory. It may then notify the provisions needed to implement the agreement. A specified territory is an area outside India that the Central Government notifies as such.

Under sub-section (2), a specified association in India may enter into an agreement with a specified association in the specified territory for the same purposes. The Central Government may then notify the provisions needed to adopt and implement that agreement. A specified association is an institution, association or body, incorporated or not, that works under a law in force in India or in the specified territory and is notified as such by the Central Government.

Sub-section (3) lists what an agreement under sub-section (1) or (2) may be for:

(a) the granting of relief in respect of two kinds of cases: (i) income on which income-tax has been paid both under this Act and in the other country or specified territory; and (ii) income-tax chargeable under this Act and under the corresponding foreign law, to promote mutual economic relations, trade and investment;
(b) avoidance of double taxation of income under this Act and the corresponding foreign law, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping;
(c) exchange of information for preventing evasion or avoidance of income-tax under this Act or the corresponding foreign law, or for investigating such cases; and
(d) recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory.

The key protection is sub-section (4). Where an agreement applies to an assessee for granting relief of tax or avoiding double taxation, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. Sub-section (6) is the exception: irrespective of sub-section (4), the provisions of Chapter XI apply even if they are not beneficial. Chapter XI is not described in the text supplied, so check its content in your study material.

A non-resident must also meet conditions under sub-section (8). He needs a certificate of residence from the Government of his country or specified territory, and must provide the other prescribed documents and information. Without these, he cannot claim relief under the agreement.

On the comprehensive versus limited DTAA question: section 159 does not use these terms. In practice, a comprehensive treaty covers many kinds of income and may also cover information exchange and recovery. A limited treaty covers only specified income, such as shipping or air transport. Treat this as a general classification, and tie any answer back to the purposes in sub-section (3).

Key rules to remember

Central Government's power: Section 159(1): agreement with any other country or specified territory + notification to implement. Section 159(2): agreement between specified associations + notification to adopt and implement; Specified territory means an area outside India notified as such by the Central Government. Specified associations must also be notified.
Purposes of an agreement: Section 159(3): (a) relief on (i) income taxed in both places and (ii) tax chargeable under both laws, to promote economic relations, trade and investment; (b) avoidance of double taxation; (c) exchange of information; (d) recovery of tax under this Act and the corresponding foreign law; Clause (b) requires that no opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty-shopping, are created.
Beneficial provision rule: Section 159(4): the provisions of this Act shall apply to the extent they are more beneficial to that assessee; Applies where an agreement covers the assessee and is for granting relief of tax or avoidance of double taxation.
Override of the beneficial rule: Section 159(6): Chapter XI applies even if not beneficial; Applies irrespective of sub-section (4).
Meaning of terms: Section 159(7): agreement definition first; then this Act and Central Government's explanation; then notification; then other Central Government laws; Notified meanings take effect from the date the agreement came into force.
Condition for non-resident relief: Section 159(8): residence certificate from foreign Government + prescribed documents and information; Both conditions must be met.
Higher tax rate on foreign company: Section 159(5): higher rate on a foreign company than on a domestic company is not a less favourable charge; Also applies to a company incorporated in a specified territory.

How to solve Agreements with Foreign Countries under Section 159 questions

Use this method for any case question on section 159 and treaty relief.

1Identify the other jurisdiction: is it a country or a notified specified territory, and is there an agreement under section 159(1) or an adopted agreement between specified associations under section 159(2)?
2If there is no agreement under section 159, do not apply section 159. If the assessee is a resident in India with income that accrued outside India (and is not deemed to accrue in India) and has paid tax on it in that country, consider section 160.
3State the purpose of the agreement from section 159(3): relief, avoidance of double taxation, information exchange or recovery.
4Check the residence status of the assessee. If a non-resident claims relief, test the section 159(8) conditions: residence certificate and prescribed documents.
5Apply section 159(4): the provisions of the Act apply to the extent they are more beneficial to the assessee. Check whether Chapter XI is involved under section 159(6).
6If a term is in dispute, apply the section 159(7) order: agreement, then this Act, then notification, then other Central Government laws.
7Write a clear conclusion in the form: provision, application to facts, result.

Quickest way: Four-check shortcut for section 159 questions

When to use it: Use when time is short and the question gives facts about a foreign income and a treaty.

Check: is there an agreement under section 159 with that country or territory? If no, and the assessee is a resident in India with foreign-source income taxed abroad, think of section 160.
Check: does the non-resident hold a residence certificate and the prescribed documents?
Check: the Act applies to the extent more beneficial to the assessee. Exception: Chapter XI.
Check: is any term undefined? Use the section 159(7) hierarchy.
Write the section number against each point to secure marks.

Common mistakes in Agreements with Foreign Countries under Section 159

Saying the treaty always overrides the Act.
Students remember that treaties give relief but skip the wording of sub-section (4).
Fix: Write the rule as the section words it: the provisions of the Act apply to the extent they are more beneficial to that assessee. Do not say the treaty always prevails. Add the Chapter XI exception.
Forgetting the residence certificate for a non-resident.
Students focus on the tax rate and ignore the procedural condition.
Fix: Always mention section 159(8): a certificate from the foreign Government plus the prescribed documents and information.
Applying section 159 where no agreement exists, or using section 160 without its conditions.
Students treat section 159 as giving relief by itself, and treat section 160 as open to every taxpayer.
Fix: Section 159 only authorises agreements. Section 160 applies to a person resident in India with income that accrued outside India (and is not deemed to accrue in India), who has paid income-tax on it in a country with which there is no agreement under section 159. The deduction is at the lower of the Indian rate and that country's rate, or at the Indian rate if both are equal.
Listing only relief and avoidance as the purposes.
Information exchange and recovery are less discussed.
Fix: Remember all four in sub-section (3): relief, avoidance of double taxation, exchange of information, recovery. Recovery links to section 418.
Treating a higher rate on a foreign company as discriminatory.
Students assume equal rates are always required.
Fix: Section 159(5) says a higher rate than on a domestic company is not a less favourable charge.
Ignoring the anti-abuse wording in sub-section (3)(b).
Students read treaties only as relief tools.
Fix: Quote that avoidance of double taxation must not create opportunities for non-taxation or reduced taxation, including through treaty-shopping.

Worked examples

Example 1

Rohan, a non-resident, earns income from India. His country has an agreement with India under section 159 that taxes this income at a lower rate than the Act. He has not obtained any certificate of residence from his country's Government. Can he claim the treaty rate? Advise.

Show the solution

Provision: section 159(4) applies the Act to the extent it is more beneficial to the assessee, so the agreement's lower rate is the relief he would seek.
Condition: section 159(8) requires a non-resident to obtain a certificate of residence from the Government of his country or specified territory, and to provide other prescribed documents and information.
Facts: Rohan has no certificate.
Application: the condition in section 159(8)(a) is not met, so relief cannot be claimed yet.

Answer: Rohan cannot claim relief under the agreement until he obtains the residence certificate and provides the prescribed documents and information.

Example 2

Meera Pvt Ltd, a resident in India, has income that accrued in Country X (and is not deemed to accrue in India), and has paid income-tax on it in Country X. India has no agreement with Country X under section 159. A colleague says section 159 will give relief. Is this correct?

Show the solution

Section 159 empowers the Central Government to enter into agreements. It gives no relief by itself.
Facts: there is no agreement under section 159 with Country X, so section 159(4) cannot apply.
Section 160(1) applies to a person resident in India who proves that, on income accruing or arising outside India (and not deemed to accrue or arise in India), he has paid income-tax in a country with which there is no agreement under section 159.
Meera Pvt Ltd meets these conditions, so it gets a deduction from its Indian income-tax, calculated on the doubly taxed income at the Indian rate of tax or the rate of tax of Country X, whichever is lower, and at the Indian rate if both are equal.

Answer: The colleague is wrong. Relief for Meera Pvt Ltd comes under section 160, at the lower of the Indian rate and Country X's rate (or the Indian rate if both are equal), because the conditions of section 160(1) are met.

Exam tips

Quote the sub-section numbers: (1) power, (3) purposes, (4) beneficial rule, (6) Chapter XI, (7) terms, (8) residence certificate.
Open case answers by stating whether an agreement exists, and move to section 160 if not.
Write a short line on the anti-treaty-shopping wording of sub-section (3)(b) when the facts hint at abuse.
Use the format provision, application, conclusion, and end with one clear sentence of advice.
Do not state the comprehensive versus limited DTAA split as a rule in section 159; present it as a general classification.

Practice questions from Double Taxation Avoidance Agreement (DTAA)

Agreements with Foreign Countries under Section 159 in other exams

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

CMA FinalAgreements with Foreign Countries under Section 159

Agreements with Foreign Countries under Section 159: frequently asked questions

What does section 159 of the Income-tax Act, 2025 deal with?

It gives the Central Government power to enter into agreements with foreign countries or specified territories, and lets specified associations in India agree with their counterparts in a specified territory. The agreements may be for relief, avoidance of double taxation, exchange of information and recovery of tax. The Government may notify provisions to implement or adopt them.

Does the treaty or the Act apply if both cover the same income?

Section 159(4) says that, where an agreement applies to the assessee, the provisions of the Act apply to the extent they are more beneficial to that assessee. Write the rule in these words. Chapter XI applies even if it is not beneficial.

What is the difference between a comprehensive and a limited DTAA?

Section 159 does not use these terms. In general usage, a comprehensive agreement covers many types of income, while a limited one covers specific income such as shipping or air transport. Always link your answer to the purposes in section 159(3).

What must a non-resident show to claim relief under a DTAA?

Under section 159(8), the non-resident must obtain a residence certificate from the Government of his country or specified territory. He must also provide the other prescribed documents and information.