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

Mr. Arvind is resident in India and earns Rs 2,00,000 of foreign-source income in a country with which India has no section 159 agreement. His Indian rate of tax is 30% and the foreign country charged tax at an effective rate of 20% on that income. How much relief is he entitled to under section 160 of the Income-tax Act, 2025?

The relief is Rs 40,000. Section 160 gives deduction at the lower of the Indian rate (30%) and the foreign country's rate (20%) on the doubly taxed income. Twenty per cent of Rs 2,00,000 equals Rs 40,000; using the 30% Indian rate would wrongly give Rs 60,000.

  1. ARs 40,000Correct
  2. BRs 60,000
  3. CRs 20,000
  4. DRs 1,00,000

Explanation

Section 160(1) allows deduction at the lower of the Indian rate and the foreign rate. The lower rate is 20%, so relief is 20% x Rs 2,00,000 = Rs 40,000. Rs 60,000 wrongly uses the Indian rate of 30%.

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