Types of Relief - International Taxation - Income Tax

Types of relief There are two types of Double Taxation Relief. Bilateral Relief [ Section 90 Section 90A ] Unilateral Relief [ Section 91 ] Bilateral relief When 2 countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which relief is to be granted. Bilateral relief may be granted in wither one of the following methods: Tax Exemption Method A particular income is taxed in only one of the two countries. Such method are based on OECD Model Tax Convention or UN Model Tax Convention provided in Article - 23A. [ For more details refer this chapter Article 23A - Exemption Method ] Tax credit Method Income is taxable in both countries in accordance with their tax laws read with double taxation avoidance agreement. The country of residence of the taxpayer, however, allows him credit for the tax charged thereon in the country of source. Such method are based on OECD Model Tax Convention or UN Model Tax Convention provided in Article - 23B. [ For more details refer this chapter Article 23B - Credit Method ] India has entered into agreements for relief against or avoidance of double taxation with more than 100 countries which include Sri Lanka, Switzerland, Sweden, Denmark, Japan, federal Republic of Germany, Greece etc. India follows credit method in majority of its DTAAs. Unilateral Relief In this method a country provides relief for double taxation to its resident for the taxes paid in other country, even where no DTAA has been entered into with that country. India grants unilateral relief through credit method u/s 91 to its resident for taxes paid in the country, with which India has not signed DTAA. India Has introduced Foreign Tax Credit Rules under Rule 128 of Income Tax Rule 1962 which allows for granting credit to resident Indians for taxes paid in the other country.