Relief Provisions in Income Tax Act
Relief provisions under sections 90, 90A, and 91 of the Income Tax Act related to double taxation avoidance, tax deductions for income earned outside India, and examples of calculating tax relief. Understand the types of relief available and how they benefit taxpayers in a global business environment.
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Relief u/s 90, 90A & 91 of the Income Tax Act Presented by: PAMS Professional Group 1
Reason of the Relief Situation In the current business environment, businesses are expending outside the border of countries and becoming global. A lot of foreign companies are operating in India and many Indian companies are operating in foreign countries. These companies pay taxes on the same income in more than one country. For example, Indian company X Limited operating in the USA has to pay tax in the USA on Income earned there and has to pay tax in India on its global income which includes income earned in the USA. To provide relief from this double taxation Governments are entering in Double Taxation Avoidance Agreement. Income Tax Act also offers multiple reliefs to the Assessees. 2
Type of Relief If a person who is resident in India in any previous year, in respect of his income, accrued or arose outside India has paid tax on such income in any country outside India, he shall be entitled deduction from the Income Tax payable by him of a sum calculated on such doubly taxed income: Under section 90 if the country in which tax is paid has entered double taxation avoidance agreement with the Government of India. Similarly, relief u/s 90A works in DTAA is in place for only specific associations. However, there are a few countries that do not currently have any DTAA with India, and in such cases, tax relief may be sought through relief u/s 91. 3
Tax Relief u/s 90 This occurs whenever there is a DTAA between India and another country as a whole. In such cases, the individual leaves for abroad mid- year and hence receives salary from both India and from that foreign country. Tax deduction occurs from both salaries, following which relief is claimed through U/s. 90. Computing Double Taxation relief: Step wise 1. Compute the total global Income 2. Calculate tax on total global income 3. Compute average tax 4. Multiply average tax with Foreign income 5. Calculate tax paid in Foreign country 6. Relief is whichever is lower between 4 and 5 4
Example on relief u/s 90 Mr. Sameer, a resident, earned income in India Rs. 3,00,000/-. He also earned income from foreign country Rs. 1,00,000 (Tax paid in foreign country Rs. 10,000). How much tax relief Mr. Sameer could claim and how much tax he shall be required to pay? The relief shall be calculated as follows: 1. Global income is Rs. 4,00,000/- (Rs.3,00,000+ Rs.1,00,000) 2. Tax on global income Rs. 15,000/- (let s say) 3. Average rate of tax Rs. 3.75% (15,000/4,00,000*100) 4. Tax required to be paid Rs. 3,750/- (Rs.1,00,000*3.75/100) 5. Tax paid in foreign country is Rs. 10,000/-. The amount of relief shall be lower of (4) and (5) i.e. Rs. 3,750/- 5
Tax Relief u/s 90A In case there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A. When a specified association in India enters into an agreement with a specified association abroad, the Central Government, may by notification adopt such agreement and provide relief under section 90A of the Income Tax Act, 1961. Method for calculation of relief is same as section 90. 6
Tax Relief u/s 91 In case there is No DTAA, then Tax Relief can be claimed u/s 91. Steps to compute relief: 1. Calculate the tax payable in India 2. Compare the Indian tax rate and Foreign tax rate 3. Multiply the lower tax rate with the doubly taxed income 4. This multiplied total is the relief 7
Example on relief u/s 91 Mr. Rohan has doubly taxed foreign income of Rs. 1,00,000/-. Tax is payable in India at the rate of 30%. Tax rate in Foreign country is 20%. The relief shall be calculated as follows: 1. Tax payable in India will be Rs. 30,000/- (1,00,000*30%) 2. Lower of Indian rate of tax (30%) and rate of tax in Foreign country (20%) is 20%. 3. The relief will be Rs. 20,000/- (1,00,000*20%) The amount of relief will be Rs. 20,000/- as computed in Step 3. 8
Form 67 Section 90 is aimed at handling scenarios where India has signed a DTAA with the other country. While Section 91 handles scenarios where India hasn t signed any such agreements with another country. There were some confusions in the past regarding foreign tax credit. But with the introduction of Rule 128 and Form 67, most of them have been resolved. Applicable from the 1st of April 2017, Rule 128 makes it clear that only residents can avail the tax credit. And this is only on the amount that they have paid as taxes in another country. And you can only claim for the credits if your income in India is being assessed on the same year as you are claiming the credits. 9
Form 67 If you want to avail foreign tax credit, Form 67 is something that you simply should not ignore or avoid. It must be submitted if you wish to get a tax credit refund. And if you fail to do so, availing foreign tax credit is next to impossible. To ensure a smooth process, file your Form 67 on or before the standard due date for filing your tax returns. The 31st of July is the last date for the previous assessment year. You would need to attach supporting documents along with your Form 67 to ensure smooth processing. Usually, a certificate that states the type of income and the amount of taxes that you have paid should suffice. The certificate should be provided by the tax authority of the foreign government or the person who was responsible for handling your taxes such as your ex-employer. 10
Form 67 11
How to Fill the form CBDT has released the procedure for online filing of Form 67 vide notification number 09 dated 19thSeptember, 2017. The procedure is as under: Form 67 shall be available to all assessee s login The assessee is required to login into the e-filing portal using their valid credentials Go to E-file menu and then click on Prepare and submit online forms (Other than ITR) Select Form 67 and assessment year from the drop down. Instructions to file the form are enclosed along-with the form. The completed Form 67 can be submitted by clicking on submit button Digital Signature Certificate or Electronic Verification Code is mandatory to submit Form 67 12
How to Fill the form The first four sections in the form expect some basic information from you, such as name, address, PAN number and the AY. The next section requires a lot of additional information. Here is a list of all the fields that you would have to fill in the form. Foreign Country: The name of the country/territory where you were working and have received income of some form. Income Source: Your source of income in a foreign country. If you have multiple sources of income, you need to declare all of them. Whether it is salary or income from a rented property, it must be declared. Total outside income: You need to mention the total income that you have received outside India or its territory. 13
How to Fill the form Taxes paid: You need to specify the total amount of taxes that you have paid on foreign income. You need to mention the amount and the conversion rate of the currency as well. Taxes paid in India: on such foreign income Tax credit under Section 90/90A: This section is applicable for income that you earn in countries that India has entered a DTAA with. You would need to mention the treaty, which mandates that the income is taxed. The total amount that is taxed as per DTAA Total foreign tax credits: Once you will all the above details, the website will calculate the minimum credit amount. 14
FAQs Q: Can anyone claim Foreign Tax Credit? A: Only resident Indians can claim for the tax credits, as long as they have paid taxes in another country. Q: When should I file Form 67? A: You should file Form 67 before filing your tax returns. Q: What are the documents that I need to furnish to claim Foreign Tax Credit? A: You would need to furnish documents to state the foreign income that needs taxation, a document to state the type of income and tax deducted, lastly a proof of the taxes that you have paid outside India. Q: Where can I file Form 67 form? A: The e-filing portal offered by the income tax department is where you can find and fill the form. 15
Thank You So Much PAMS Professional Group 16
