Section 90, 90A, and 91 of the Income Tax Act, 1961

Imagine a scenario where you, a resident Indian, are freelancing for a company in the U.S. Now, the income you earn from the freelancing activity will be taxed in the U.S. since it originates there. However, being a resident Indian, you will also have to pay tax on that income here in India. This phenomenon of paying tax twice in two different countries on the same income is termed double taxation.Double taxation can be hugely detrimental since it can drastically reduce your income. This is precisely why many countries, India included, sign double taxation avoidance agreements (DTAAs) with other countries. DTAAs are treaties that prevent double taxation by ensuring that you pay tax in only one country.In addition to DTAAs, the Income Tax Act of 1961 also has several safeguards of its own that provide relief from double taxation. These relief measures are outlined in Section 90, Section 90A, and Section 91 of the Income Tax Act.In this article, we are going to explore these sections in detail, including how to compute double taxation relief under Section 90, Section 90A and Section 91 of the Income Tax Act.

Before we start by exploring Section 90 of the Income Tax Act in detail, let us first get acquainted with the different kinds of relief from double taxation that you can avail of.Relief from double taxation can be in the form of either unilateral relief or bilateral relief.

• Unilateral Relief Unilateral relief is provided by the home country when there is no double taxation avoidance agreement between the home country and the country from which you earn your income and pay taxes.
• Bilateral Relief Bilateral relief is provided when there is a double taxation avoidance agreement between the home country and the country from which you earn your income and pay taxes. Bilateral relief can be offered in either of the two following ways:
• Exemption Method Here, the income is taxed in only one country, with the other country exempting the income from tax. The country in which taxes are levied and exempted is decided based on the terms of the DTAA signed between them.
• Tax Relief Method Here, the income is taxed in both countries. However, the home country provides tax relief in the form of a tax credit to compensate for the double taxation.

Also Read: Maximizing Tax Savings: Understanding Sections 80C, 80D, and 80CCD

Section 90 of the Income Tax Act of 1961 is a provision that provides bilateral relief from double taxation to taxpayers with foreign income.Sec. 90 is only applicable if there is a double taxation avoidance agreement signed between the government of India and the government of the country in which the income was earned and taxed. Additionally, the nature of relief can either be in the form of an exemption or a foreign tax credit, depending on the terms of the DTAA between the two countries.For example, let us say that you are a resident of India and that you work for a company in the U.S. Since both India and the U.S. have a DTAA, you can claim relief from double taxation under Section 90 of the Income Tax Act of 1961.

Section 90A of the Income Tax Act of 1961 is a provision that provides bilateral relief from double taxation to taxpayers with foreign income. Although Section 90A may seem identical to Sec. 90 of the Act, there is one major difference between the two.Section 90A of the Income Tax Act is only applicable if there is a double taxation avoidance agreement between two entities from two countries. Section 90A is in stark contrast to Section 90, where the DTAA must be signed between two governments. Here is an example to help you understand Section 90A in a better way.Assume you are a resident of India working in a company named ABC Limited. ABC Limited has a foreign subsidiary in the U.K., with which it has signed a DTAA. You have been temporarily asked to relocate to the U.K. to work for the foreign subsidiary on a particular project.Now, the income you earn from the U.K. subsidiary will be taxed in both countries. However, since there is a DTAA between the two entities, you can claim relief from double taxation under Section 90A of the Income Tax Act of 1961.However, it is essential to keep in mind that the relief under this Section 90A will be offered only in the form of a foreign tax credit. You will not be eligible to claim a tax exemption under Section 90A.

Section 91 of the Income Tax Act of 1961 is a provision that provides unilateral relief from double taxation to taxpayers with foreign income. Section 91 is applicable only if there is no DTAA between India and the country in which the income is earned and taxed.Relief from double taxation is offered in the form of a foreign tax credit and is limited to the lowest payable tax rate among the two countries. Here is an example to help you understand how Section 91 works.Assume you are an Indian resident who freelances for a company in Argentina. You earn Rs. 20 lakh during the current financial year. The tax rate applicable in India is 30%, whereas the tax rate applicable in Argentina is 35%. Since India does not have a DTAA with Argentina, you can claim unilateral relief under Section 91 of the Income Tax Act. However, the maximum amount of relief you can claim under Section 91 would be limited to the lower of the two tax rates, which would be 30% of Rs. 20 lakh. Also Read: Section 234B & 234C: Understanding Interest and Penalties on Advance Tax and Its Calculation

Knowing how to compute the relief you are eligible for under Section 90 and Section 91 is crucial for making effective tax planning decisions. The maximum amount of foreign tax credit you can claim as relief is the lower of the following two amounts:

• The amount of tax to be paid in India on foreign income
• The amount of tax paid in the foreign country

Note: If the tax paid in the foreign country is in a currency other than the Indian Rupee, it needs to first be converted. The conversion rate to be used is the TTBR, or Telegraphic Transfer Buying Rate, on the last day of the month before the month in which tax has been paid or deducted.

Here is a step-by-step guide you can follow to compute the maximum amount of relief you can claim under Sec. 90 of the Act.

• Step 1: Calculate the total income by aggregating both income earned in India as well as foreign income.
• Step 2: Calculate the amount of tax to be paid in India on the aggregate total income.
• Step 3: Calculate the average tax rate by dividing the amount of tax to be paid in India by the aggregate total income.
• Step 4: Calculate the amount of tax to be paid in India on the foreign income by multiplying the average tax rate with the foreign income.
• Step 5: Calculate the amount of tax to be paid in the foreign country.
• Step 6: Compare the amount of tax to be paid in India on the foreign income (step 4) with the amount of tax to be paid in the foreign country (step 5). The lower of the two amounts would be the maximum relief u/s 90 you can claim.

Here is the process you need to follow to compute the maximum amount of relief you can claim under Section 91 of the Income Tax Act.

• Step 1: Determine the rate of tax applicable to you in India.
• Step 2: Determine the rate of tax applicable in the foreign country in which you earned the income.
• Step 3: Compare the two tax rates and determine the lowest rate of tax.
• Step 4: Multiply the lowest tax rate with the foreign income you earned.
• Step 5: The resulting figure is the maximum amount of relief you can claim under Section 91 of the Income Tax Act.

Also Read: A Guide to Tax Saving Under Section 10 (10D) of Income Tax

Section 90, Section 90A and Section 91 of the Income Tax Act of 1961 have been drafted specifically to help Indian taxpayers earning foreign income avoid the burden of double taxation. If you are someone with foreign income, remember to use these provisions to reduce your tax liability by preventing double taxation.That said, to claim foreign tax credit, you need to submit certain documents along with your income tax returns (ITRs) . The list of documents includes Form 67, which is a statement from you detailing the nature of income, the amount of income earned and tax paid in the foreign country, and the details of the foreign tax authority. Additionally, you must also attach a copy of the tax payment or deduction receipt and a statement from the foreign tax authority or the person deducting the tax.Since submitting these documents is crucial to claiming a foreign tax credit, you must ensure that you keep detailed records of all the income earned and taxes paid in a foreign country.Ready to make the most of your money? Start your tax planning journey now!