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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), which of the following correctly describes the purpose for which the Central Government may enter into an agreement with a foreign country under section 159?

Section 159(3) permits agreements for relief or avoidance of double taxation, exchange of information to prevent or investigate evasion or avoidance, and recovery of income-tax. It does not limit them to relief alone, nor does it provide for fixing uniform corporate tax rates.

  1. AOnly for granting relief on income taxed in both countries, and not for any exchange of information
  2. BFor relief of double taxation, exchange of information to prevent evasion, and recovery of income-tax, among other purposesCorrect
  3. COnly for recovery of income-tax of the other country from Indian residents
  4. DOnly for fixing a uniform rate of tax on companies in both countries

Explanation

Section 159(3) lists the purposes of an agreement: relief or avoidance of double taxation, exchange of information for preventing or investigating evasion or avoidance, and recovery of income-tax. The first option wrongly excludes information exchange, and the last two are not purposes stated in the section.

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