Skip to content

CA Final · Direct Tax Laws & International Taxation · Double Taxation Relief

Under the domestic law, a non-resident's royalty from India is taxable at 20%, while the notified treaty with its country of residence provides a rate of 10%. In another case, the treaty rate would be 25% against the domestic rate of 20%. According to section 159(4) of the Income-tax Act, 2025, how is tax charged in these two cases?

Tax is charged at 10% in the first case and 20% in the second. Section 159(4) applies the Act only to the extent it is more beneficial to the assessee, so the assessee gets the lower of the treaty rate and the domestic rate in each case.

  1. A10% in the first case and 25% in the second case, as the treaty always overrides
  2. B20% in the first case and 20% in the second case, as domestic law always prevails
  3. C10% in the first case and 20% in the second case, as the Act applies to the extent more beneficial to the assesseeCorrect
  4. D20% in the first case and 25% in the second case, as the higher rate always applies

Explanation

Section 159(4) says that where an agreement applies, the Act's provisions apply to the extent they are more beneficial to the assessee. In the first case the treaty rate of 10% is lower and more beneficial. In the second case the domestic rate of 20% is lower, so it applies instead of the treaty's 25%.

Did you get it right without looking?

One question tells you little. A timed set on Double Taxation Relief shows your real accuracy, how long you take and where you lose marks.

Practise Double Taxation ReliefFree diagnostic mock

More Double Taxation Relief questions