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

Indian resident Ms. Meera's income from a country with no treaty with India is ₹4,00,000. Her Indian income-tax before foreign relief is ₹3,00,000 on total income of ₹15,00,000. In that country the whole income assessed was ₹4,00,000 and she paid ₹1,00,000 tax there, with no other relief available. What deduction is allowed under section 160?

The deduction is ₹80,000. The Indian rate is ₹3,00,000 divided by ₹15,00,000, which is 20%, and the foreign rate is 25%. Section 160 applies the lower rate to the doubly taxed income of ₹4,00,000, giving ₹80,000 rather than the actual foreign tax paid.

  1. A₹1,00,000
  2. B₹80,000Correct
  3. C₹60,000
  4. D₹1,20,000

Explanation

Indian rate = 3,00,000 / 15,00,000 = 20%. The foreign rate = 1,00,000 / 4,00,000 = 25%. The lower rate is 20%, so the deduction = 20% of 4,00,000 = ₹80,000. Taking the actual foreign tax of ₹1,00,000 is wrong because the deduction is capped at the Indian rate.

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