Article 23B - Credit Method - International Taxation - Income Tax

Article 23B - Credit Method As per OECD Model Tax Convention 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 allow: a) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other State; b) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State. Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State. [ Para 1 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 2 of Article 23B ] As per UN Model Tax Convention Article 23B of the United Nations Model Convention reproduces Article 23B of the OECD Model Convention. As Per Indian Tax 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 ]