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

Mr. Kumar, an Indian resident, earned foreign income from Country X, which has no agreement with India under section 159. He paid tax of ₹60,000 in X on that income. His Indian income-tax on the same income, at the Indian rate of tax, works out to ₹45,000. What relief can he claim under section 160 of the Income-tax Act, 2025?

The relief is ₹45,000. Under section 160, where no treaty exists, the deduction is computed at the lower of the Indian rate and the foreign rate. Foreign tax of ₹60,000 exceeds the Indian tax of ₹45,000, so relief is capped at the Indian tax on that income.

  1. A₹60,000
  2. B₹45,000Correct
  3. C₹15,000
  4. D₹1,05,000

Explanation

Section 160(1) allows a deduction calculated at the Indian rate or the foreign rate, whichever is lower. The foreign tax of ₹60,000 is at a higher rate than the Indian tax of ₹45,000, so the lower Indian-rate amount of ₹45,000 is allowed. ₹60,000 ignores the lower-of rule, and ₹15,000 wrongly takes the difference.

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