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

Meera, resident in India, has a total income of Rs 10,00,000 on which Indian income-tax after reliefs under the Act is Rs 2,00,000. It includes foreign income of Rs 4,00,000 from a country with no section 159 agreement. That country assessed total income of Rs 5,00,000 and tax actually paid there, before double-tax relief, was Rs 1,25,000. What deduction is allowed under section 160?

The deduction is Rs 80,000. The Indian rate is 20% and the foreign rate is 25%; the lower rate of 20% applies to the doubly taxed income of Rs 4,00,000, giving Rs 80,000.

  1. ARs 1,00,000
  2. BRs 80,000Correct
  3. CRs 1,25,000
  4. DRs 1,60,000

Explanation

Indian rate = 2,00,000/10,00,000 = 20%. Foreign rate = 1,25,000/5,00,000 = 25%. The lower is 20%, applied on the doubly taxed income of 4,00,000 gives Rs 80,000. Rs 1,00,000 wrongly uses the 25% foreign rate, and Rs 1,25,000 is the whole foreign tax.

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