Article 23A - Exemption Method - International Taxation - Income Tax

Article 23A - Exemption Method As per OECD Model Tax Convention Exemption Available in Resident State for taxes deducted in Source state Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State, the Contracting State shall, exempt such income or capital from tax. [ Para 1 of Article 23B ] Exception Income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of this Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10 (Dividends) or Article 11 (Interest) to such income. [ Para 4 of Article 23B ] Exemption available for Dividends or Interest Income Where a resident of a Contracting State derives items of income which may be taxed in the other Contracting State in accordance with the provisions of Articles 10 (Dividends) and Article 11 (Interest) except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State, the Contracting state first mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State. [ Para 2 of Article 23B ] Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital. [ Para 3 of Article 23B ] As per UN Model Tax Convention Exemption Available in Resident State for taxes deducted in Source state Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State, the Contracting State shall, exempt such income or capital from tax. [ Para 1 of Article 23B ] Exception Income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of this Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10, 11, 12 or 12A, or the provisions of Article 12B, to such income; in the case where the other Contracting State does not exempt the income, the Contracting State shall allow the deduction of tax provided for by paragraph 2. [ Para 4 of Article 23B ] Exemption available for income under Articles 10, 11, 12, 12A and 12B Where a resident of a Contracting State derives items of income which, in accordance with the provisions of Articles 10, 11, 12, 12A and 12B may be taxed in the other Contracting State, the Contracting State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income which may be taxed in that other State. [ Para 2 of Article 23B ] Where in accordance with any provision of this Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital. [ Para 3 of Article 23B ] As per Indian Tax Law Under this method , the Government of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which the relief is to be granted. Exemption method is way of Bilateral Relief for providing relief from double taxation for this deal through Section 90/90A of Income Tax Act, 1961. [ For more details refer this chapter link Section 90 or Section 90A ]