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CMA Final · Direct Tax Laws and International Taxation · Double Taxation Avoidance Agreements (DTAA)

A resident Indian, Ms. Kavya, earned foreign income of Rs 4,00,000 in a country with which India has no agreement under section 159. Her Indian rate of tax is 30% and the rate of tax of that country is 20%, and she paid tax there accordingly. Under the Income-tax Act, 2025, what is the deduction from her Indian income-tax on this doubly taxed income?

The deduction is Rs 80,000. With no treaty, section 160 allows relief at the lower of the Indian rate (30%) and the foreign rate (20%) on the doubly taxed income. Twenty percent of Rs 4,00,000 gives Rs 80,000, not the higher Indian-rate figure.

  1. ARs 1,20,000
  2. BRs 80,000Correct
  3. CRs 40,000
  4. DRs 2,00,000

Explanation

Section 160 gives relief at the Indian rate or the foreign rate, whichever is lower. The lower rate is 20%, so the relief is 20% x Rs 4,00,000 = Rs 80,000. Using the Indian rate of 30% (Rs 1,20,000) would exceed the tax actually borne abroad and is wrong.

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