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

Mr. Rao, a resident in India, earned income in a country with which India has no agreement under section 159. The Indian rate of tax on that income is 30% and the rate of tax of that country is 20%. The doubly taxed income is Rs 5,00,000, and 20% foreign tax was actually paid. What deduction from Indian income-tax is allowed under section 160?

The deduction is Rs 1,00,000. Where no agreement exists, section 160 gives relief at the lower of the Indian rate (30%) and the foreign rate (20%) on the doubly taxed income of Rs 5,00,000, so 20% of Rs 5,00,000 applies.

  1. ARs 1,50,000
  2. BRs 1,00,000Correct
  3. CRs 1,25,000
  4. DRs 50,000

Explanation

Section 160(1) allows relief at the Indian rate or the foreign country's rate, whichever is lower. The lower rate is 20%, so relief is 20% of Rs 5,00,000 = Rs 1,00,000. Rs 1,50,000 wrongly uses the higher Indian rate of 30%.

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