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

A resident Indian, Meera, earned foreign income of ₹5,00,000 in a country with which India has no agreement under section 159. Indian rate of tax on it is 30% and the foreign tax paid was ₹1,00,000 (the foreign rate is 20%). What relief is allowed under section 160 of the Income-tax Act, 2025?

Relief is ₹1,00,000. Under section 160(1), where no agreement exists, deduction is computed at the lower of the Indian rate (30%) and the foreign rate (20%, being ₹1,00,000 on ₹5,00,000). Twenty per cent of ₹5,00,000 gives ₹1,00,000.

  1. A₹1,00,000Correct
  2. B₹1,50,000
  3. C₹50,000
  4. D₹2,50,000

Explanation

Section 160(1) gives deduction at the lower of the Indian rate and the foreign rate. Foreign rate = 1,00,000/5,00,000 = 20%, which is lower than 30%. Relief = 20% x 5,00,000 = ₹1,00,000. Using the 30% Indian rate would give ₹1,50,000, which is wrong.

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