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

Mr. Arjun, resident in India, earned foreign income of Rs 4,00,000 in a country with which India has no agreement under Section 159. Indian rate of tax is 30% and the foreign tax actually paid on that income is Rs 80,000, with the country's rate of tax being 20% of that income as assessed there. What deduction from Indian tax is allowed under Section 160 of the Income-tax Act, 2025?

The deduction is Rs 80,000. Section 160(1) gives relief at the lower of the Indian rate (30%) and the foreign country's rate (20%) on the doubly taxed income, and 20% of Rs 4,00,000 equals Rs 80,000.

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

Explanation

Section 160(1) allows deduction at the Indian rate or the foreign country's rate, whichever is lower. The lower rate is 20%, so 20% of Rs 4,00,000 = Rs 80,000. Rs 1,20,000 wrongly uses the higher Indian rate of 30%.

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