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

Ms. Kavya, a resident in India, earned foreign income from a country with which India has no agreement under section 159. Her Indian rate of tax on that income is 30% and the rate of tax of that country is 20%. The doubly taxed income is ₹5,00,000. What deduction from Indian income-tax is available under section 160?

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

  1. A₹1,00,000Correct
  2. B₹1,50,000
  3. C₹50,000
  4. D₹2,50,000

Explanation

Under section 160(1), relief is calculated at the lower of the Indian rate and the foreign rate. The lower rate is 20%, so relief is 20% × 5,00,000 = ₹1,00,000. Using the Indian rate of 30% would give ₹1,50,000, which is wrong because the higher rate is not allowed.

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