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

Under section 159 of the Income-tax Act, 2025, a foreign company is taxed in India at a higher rate than a domestic company. How is this treated for a treaty clause on non-discrimination, which bars less favourable charge of tax?

A higher rate of tax on a foreign company than on a domestic company is not regarded as a less favourable charge of tax. Section 159(5) says so expressly, so such a rate difference alone does not breach a treaty non-discrimination clause.

  1. AIt is regarded as a less favourable charge of tax
  2. BIt is not to be regarded as a less favourable charge of taxCorrect
  3. CIt is a less favourable charge only if the difference exceeds 5 percentage points
  4. DIt is a less favourable charge unless the foreign company has a permanent establishment

Explanation

Section 159(5) states that charging a foreign company at a higher rate than a domestic company shall not be regarded as a less favourable charge or levy of tax. The same applies to a company incorporated in a specified territory. The threshold and permanent establishment conditions in the other options do not appear in the provision.

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