Tax Treaties – Unilateral And Bilateral Relief – Advanced Tax Laws and Practice Important Questions
Question 1.
Reddy India Ltd. is an Indian company. The following incomes are noted from its books of account:
Income from a business in India: ₹ 3,80,000
Income from a business in a Foreign country with whom India has ADT Agreement: ₹ 2,16,000
According to the ADT agreement, ₹ 2,16,000 is taxable in India. However, it can also be taxed in foreign countries @ 11.85% which can be set off against Indian Tax liability.
Find out the Indian Tax liability.
Answer:
(Computation of net tax payable by Reddy India Ltd. for Assessment Year) 2021-22
Particulars | Amount (₹) | Amount (₹) |
Income from Business in India | 3,80,000 | |
Income from a business in a foreign country (Taxable in India as Reddy India Ltd. is Resident in India being Indian Co.) | 2,16,000
|
|
Total Income | 5,96,000 | |
Tax on above @ 25% (Assuming that Turnover in PY 2018-19 did not exceed ₹ 400 crorcs) 5,96,000 × 25% | 1,49,000 | |
Add: H&EC @4% | 5,960 | 1,54,960 |
Less- Relief u/s 90 Le. As per DTAA, to the extent of tax paid on ₹ 2,16,000 in foreign country (2,16,000 × 11.85%) | (25,596) | |
Net Tax liability | 1,29,364 | |
Rounded off to nearest of ₹ 10 u/s 288B | 1,29,360 |
Question 2.
Mahesh, aged 64 years, is a resident in India. His income is ₹ 16,80,000 from a business in India and ₹ 5,45,000 from a business in a foreign country with whom India has an agreement for the avoidance of double taxation (ADT). According to the ADT agreement, income is taxable in the country in which it is earned and not in another country. However, in another country, such income can be included in the computation of tax rates. According to the tax laws of foreign countries, Mahesh has paid ₹ 32,000 as tax in that country. During the previous year, Mahesh has paid ₹ 28,000 as tuition fee for his daughter in India and ₹ 90,000 as tuition fee for his son outside India for full-time education. Mahesh has also received interest of ₹ 48,000 on Government Securities. Find out the tax liability of Mahesh.
Answer.
Computation of Tax Liability of Mr. Mahesh for Assessment Year 2021-22
Particulars | Amount(₹) | Amount(₹) |
Profits and Gains from Business or Profession in India | 16,80,000 | |
Income from other sources (Interest on Government Securities) | 48,000 | |
Gross Total Income | 17,28,000 | |
Less-. Deduction under Chapter VIA | ||
u/s 80C: Tuition Fees of a daughter, education in India | 28,000 | |
Total Income | 17,00,000 | |
Add: Foreign Income only for computing effective rate of tax as per DTAA | 5,45,000
|
|
Total Income for computing effective rate of tax | 22,45,000 | |
The effective rate of Tax | ||
Tax on ₹ 22,45,000 | ||
₹ 0-3 lacs (Being Resident Senior Citizen as age 60 or more than 60 in the PY) | – | |
₹ 3 to 5 lacs, Tax @5% | 10,000 | |
₹ 5 lacs to 10 lacs @ 2096 | 1,00,000 | |
Above ₹ 10 lacs @ 3096 (12,45,000 × 30/100) | 3,73,500 | |
4,83,500 | ||
Add: H&EC @ 496 | 19,340 | |
5,02,840 | ||
Therefore, effective rate of tax (5,02,840 / 22,45,000 X 1 00)% | 22.3982 | |
Therefore, Tax liability in India on ₹ 17,00,000 (1700000 X 22.3982/100) | 3,80,769 | |
Rounded off to nearest of 10 u/s 288B | 3,80,770 | |
Relief (For your understanding) | ||
Tax payable if there was no DTAA | 5,02,840 | |
Tax payable considering clause in DTAA | 3,80,770 | |
Relief as per DTAA AS PER GIVEN CLAUSE | 1,22,070 |
Question 3.
Amar, an individual, resident of India, receives the following payments after TDS during the previous year 2020-21:
Professional Fees on 17-8-2020: ₹ 2,40,000
Professional Fees on 4-3-2021: ₹ 1,60,000
Both the above services were rendered in Pakistan on which TDS of 4 ₹ 50,000 and ₹ 30,000 respectively has been deducted. He had incurred an expenditure of ₹ 2,40,000 for earning both these receipts incomes. His income from other sources in India is ₹ 3,00,000. Compute the tax liability of Amar and also relief under section 91, if any, for Assessment Year 2021-22.
Answer:
Computation of Tax liability of Mr. Amar for Assessment Year 2021-22
Particulars | Amount (₹ ) | Amount (₹ ) |
Gross Income from Pakistan (Net Received + TDS) | 4,80,000 | |
Less: Deductions w.r.t Expenditures incurred to earn this income | 2,40,000 | 2,40,000 |
Indian Income | 3,00,000 | |
Gross Total Income/Total Income | 5,40,000 | |
Tax | ||
2.5 lacs to 5,00,000, Tax @ 5% | 12,500 | |
5 lacs to 10 lacs, Tax @ 20% | 8,000 | |
Total | 20,500 | |
Add: Health & Education Cess @ 4% | 820 | 21,320 |
Less: Relief u/s 91 of Income-tax Act | ||
Lower of 2 | ||
Doubly Taxed Income × Indian Rate of Tax (2,40,000 × 3.9481%) | 9,475 | |
Doubly Taxed Income × Foreign Rate of Tax (2,40,000 × 16.6667%) | 40,000 | |
Relief u/s 91 | 9,475 | |
Net Tax liability | 11,845 | |
Rounded off to nearest of ₹ 10 u/s 288B | 11,850 | |
Working Notes: | ||
Indian Rate of Tax (21,320/5,40,000 × 100) | 3.9481 | |
Foreign Rate of Tax Total TDS/Total Income in foreign × 100 (80,000/4,80,000 × 100) | 16.6667 |
Question 4.
Lolita, a resident Indian has derived the following income:
(a) Income from Profession: ₹ 4,80,000
(b) Share income from a partnership firm in country M (Tax paid in-country M for this income in equivalent Indian ₹ 10,000): ₹ 50,000
(c) Commission income from a concern in country N (Tax paid in-country N @ 20%) converted in Indian ₹ 35,000.
(d) Interest from scheduled banks: ₹ 18,000
She wishes to know whether she is eligible for any double taxation relief and if so, it’s quantum. India does not have any double taxation Avoidance Agreement with Country M & Country N.
Answer:
Computation of Tax liability for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Income from profession | 4,80,000 | |
Income from other sources (Interest from Scheduled Banks) | 18,000 | |
Share Income from Partnership Firm in Country M | 50,000 | |
Commission FROM CONCERN IN Country N | 35,000 | |
Gross Total Income/Total Income | 5,83,000 | |
Tax Liability | ||
On Income up to ₹ 2,50,000 | ||
On Income Between ₹ 2.5 lacs to ₹ 5,00,000 @ 5% | 12,500 | |
On Income Between ₹ 5 lacs to ₹ 10,00,000 @ 20% | 16,600 | |
29,100 | ||
Add: H & EC @ 4% | 1,164 | 30,264
|
Less: Relief u/s 91 of Income-tax Act w.r.t. Unilateral relief | ||
w.r.t. Income from Country M | ||
Doubly Taxed Income from M X Indian rate of tax (₹ 50,000 × 5.1911%) or; | 2,596 | |
Doubly Taxed Income X Foreign rate of tax of Country M (₹ 50,000 × 20%) | 10,000 | |
Relief | 2,596 | |
w.r.t. Country N | ||
(₹ 35,000 × 5.1911%) or; | 1,817 | |
(₹ 35,000 × 20%) | 7,000 | |
Relief | 1,817 | |
Therefore, Tax liability | 25,851 | |
Rounded off to nearest of ₹ 10 u/s 288B | 25,850 | |
Working Note: | ||
Indian Rate of Tax (₹ 30,264/₹ 5,83,000 × 100) | 5.1911 | |
Foreign Rate of Tax w.r.t. Country M (₹ 10,000/ ₹ 50,000 × 100) | 20.00 |
Question 5.
Paresh, aged 66 years and an ordinary resident in India, is a professional. He has earned ₹ 1,00,000 from services provided outside India. His foreign income was taxed at 20% in that country where services were rendered. India does not have any tax treaty with that country. Assuming that the Indian income of Paresh is ₹ 6,00,000, what relief of tax under section 91 of the Income-tax Act, 1961 will be allowed to him? He has contributed ₹ 32,000 towards PPF.
Answer:
Computation of Tax liability of Mr. Paresh for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Foreign Income | 1,00,000 | |
Indian Income | 6,00,000 | |
Gross Total Income | 7,00,000 | |
Less: deductions under Chapter VI-A u/s 80C (Deposit in PPF) | 32,000 | |
Total Income | 6,68,000 | |
0-3 lacs (No Tax being Resident Senior Citizen) | – | |
3 lacs to ₹ 5,00.000 | 10,000 | |
₹ 5 lakhs to ₹ 10,00,000, Tax @ 20% (₹ 6,68,000 – ₹ 5,00,000) × 20% | 33,600 | |
Sub-Total | 43,600 | |
Add: H & FX @ 4% | 1,744 | 45,344 |
Less: Relief u/s 91 | ||
Lower of the following | ||
Doubly Taxed Income X Indian Rate of Tax (₹ 1,00,000 × 6.7880%) | 6,788 | |
Doubly Taxed Income X Foreign Rate of Tax (₹ 1,00,000 × 20%) | 20,000 | |
Therefore, Relief u/s 91 | 6,788 | |
Net Tax liability | 38,556 | |
Rounded off to nearest of ₹ 10 u/s 288B | 38,560 | |
Working Notes: | ||
Indian Rate of Tax (₹ 45,344/₹ 6,68,000 × 100) | 6.78 | |
Foreign Rate of Tax | 20.00 |
Question 6.
Shilpa, an individual, and citizen of India received remuneration from a foreign client in the previous year 2020-21. There is no DTAA in that country. The remuneration was ₹ 60,00,000 and ₹ 12,00,000 was a tax imposed by that country. Income from other sources of Shilpa in India is ₹ 9,50,000. She has deposited ₹ 1,00,000 in PPF in the previous year 2020-21.
Compute the tax relief available in India, if she brings ₹ 48,00,000 in India in convertible foreign exchange.
Answer:
Computation of tax liability of Mrs. Shilpa for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Foreign Income | 60,00,000 | |
Indian Income | 9,50,000 | |
Gross Total Income | 69,50,000 | |
Deduction u/s 80C | 1,00,000 | |
Total Income | 68,50,000 | |
Tax Liability | ||
a. On Income up to × 2,50,000 | – | |
b. On Income between × 2.5 lacs to 5 lacs | 12,500.00 | |
c. On income between × 5 lacs to 10 lacs | 1,00,000 | |
d. On Income above × 10 lacs @ 30% | 17,55,000 | |
18,67,500 | ||
Add: Surcharge @ 10% as Total Income exceeds | ||
X 50 lacs but does not exceed X 1 crore | 1,86,750 | |
Sub-Total | 20,54,250 | |
Add: H&E @ 4% of Sub Total | 82,170 | 21,36,420 |
Less: Relief u/s 91 of Income-tax Act i.e. | ||
Unilateral Relief | ||
Lower of 2: | ||
Doubly Taxed Income × Indian Rate of Tax | ||
₹ 60,00,000 × 31.1886% | 18,71,316 | |
Doubly Taxed income × Foreign rate of tax | ||
₹ 60,00,000 × 20% | 12,00,000 | |
Therefore, Relief u/s 91 | 12,00,000 | |
Net Tax Liability | 9,36,420 | |
Rounded off to nearest of ₹ 10 u/s 288B | 9,36,420 | |
Working Notes | % | |
Indian Rate of Tax | 31.1886 | |
(₹ 21,36,420/₹ 68,50,000 × 100) | ||
Foreign Rate of Tax | 20.00 | |
(₹ 12,00,000/₹ 60,00,000) |
Question 7.
Nitin, a resident of India has the following incomes during the previous year 2020-21:
Income from Textiles business in India: ₹ 7,30,000
Income from Garments business in Canada (with which India does not have DTAA): ₹ 2,40,000
Tax Levied in Canada on the above said income: ₹ 54,000 Purchase of NSC issue: ₹ 70,000
Compute the tax liability of Nitin.
Answer:
Computation of Tax liability of Mr. Nitin for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Indian Income | 7,30,000 | |
Foreign Income | 2,40,000 | |
Gross Total Income | 9,70,000 | |
Less: Deduction under Chapter VI-A | ||
u/s 80C (NSC) | 70,000 | |
Total Income | 9,00,000 | |
Tax Liability | ||
On Income up to ₹ 2,50,000 | – | |
On Income between ₹ 2.5 lacs to ₹ 5 lacs | 12,500 | |
On Income between ₹ 5 lacs to ₹ 9 lacs | 80,000 | |
Total | 92,500 | |
Add: H& EC @ 4% | 3,700 | 96,200 |
Less: Relief u/s 91 of Income-tax Act | ||
Lower of the following | ||
a. Doubly Taxed Income × Indian Rate of Tax (2,40,000 × 10.6889%) | 25,653 | |
b. Doubly Taxed Income × Foreign rate of Tax (2,40,000 × 22.5%) | 54,000 | |
Relief u/s 91 | 25,653 | |
Net Tax liability | 70,547 | |
Rounded off to nearest of ₹ 10 u/s 288B | 70,550 | |
Working Notes: | ||
Indian Rate of Tax | ||
₹ 96,200/₹ 9,00,000 × 100 | 10.6889 | |
Foreign Rate of Tax | ||
₹ 54,000/₹ 240,000 × 100 | 22.50 |
Question 8.
Yogita Kumari, a resident individual, is a freelancer dancer deriving an income of ₹ 75,000 from shows performed outside India. A tax of ₹ 10,000 was deducted at source in the country where the shows were performed. India does not have any DTAA with that country. Her income in India amounted to ₹ 3,00,000. Compute tax liability of Yogita for the assessment Year 2021-22 assuming she has deposited ₹ 10,000 in Public Provident Fund and paid ₹ 20,000 as medical insurance premium in respect of her father (Age 65 years)
Answer:
Computation of Tax liability of Mrs. Yogita for Assessment Year 2021-22
Particulars | Amount(₹) | Amount(₹) |
Foreign Income | 75,000 | |
Indian Income | 3,00,000 | |
Gross Total Income | 3,75,000 | |
Less: Deductions under Chapter VIA | ||
u/s 80C (PPF) | 10,000 | |
u/s 80D (Mediclaim) | 20,000 | 30,000 |
Total Income | 45,000 | |
Tax Liability | ||
0-2.5 lakhs | – | |
2.5 lakhs to 5 lakhs, Tax @ 5% | 4,750 | |
(3,45,000 – 2,50,000) × 5% | ||
Total | 4,750 | |
Less: Rebate to the extent of ₹ 2,500 or Tax liability, whichever is less as TI does not exceed ₹ 3,50,000 for resident individual | 2,500 | |
Add: H & EC @ 4% | 90 | 2,340 |
Less: Relief u/s 91 i.e. Unilateral Relief | ||
Lower of 2 | ||
Doubly Taxed income X Indian rate of tax (₹ 75000 × 0.6783%) | 509 | |
Or | ||
Doubly Taxed income X Foreign rate of tax (₹ 75,000 × 13.3333%) | 10,000 | |
Therefore Relief | 509 | |
Therefore, Tax Liability | 1,831 | |
Rounded off to nearest of ₹ 10 u/s 288B | 1,830 | |
Working Notes | ||
Indian Rate of tax (%) | 0.6783 | |
(₹ 2,340/₹ 3,45,000 × 100) | ||
Foreign Rate of Tax (%) | 13.3333 | |
(₹ 10,000/₹ 75,000 × 100) |
Question 9.
The following are the particulars of Income earned by Mrs. Sunita, a resident Indian aged 25 years, for the assessment year 2021-22:
Particulars | Amount (₹) |
Income from playing basketball matches in Netherland | 12,00,000 |
Tax paid in Netherland | 1,80,000 |
Income from playing Basketball matches in India | 19,20,000 |
A life insurance premium paid | 1,20,000 |
A medical insurance premium paid through net banking for her father aged 62 years | 25,000 |
Compute her total income and tax liability for the assessment year 2021-22. Assume there is no Double Taxation Avoidance Agreement between India and Netherland.
Answer:
Computation of Tax Liability of Mrs. Sunita for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Income from playing basketball matches in a foreign country | 12,00,000 | |
Income from playing basketball matches in India | 19,20,000 | |
Gross Total Income | 31,20,000 | |
Less: Deductions under Chapter VI.A | ||
u/s 80C (Life Insurance Premium) | 1,20,000 | |
u/s 80D (Mediclaim for father who is Senior Citizen, therefore 25,000 or 50,000 whichever is less) | 25,000 | 1,45,000 |
Total Income | 29,75,000 | |
Tax on Above | ||
0-2.5 lacs | – | |
2.5 lacs to 5 lacs, tax @5% | 12,500 | |
5 lacs to 10 lacs, tax c 20% | 1,00,000 | |
On income above 10 lacs, tax @ 30% | 5,92,500 | |
7,05,000 | ||
Add: H&EC 4% of tax | 28,200 | 7,33,200 |
Less: Relief u/s 91 w.r.t. doubly taxed Income | ||
Lower of the following: | ||
Doubly Taxed Income 2,95,745 X Indian rate of tax ( 12,00,000 × 24.645496) | ||
or; | ||
b. Double Taxed Income × Foreign rate of tax (1200000 × 15%) | 1,80,000 | |
Therefore, relief u/s 91 | 1.80,000 | |
Therefore, Tax liability | 5,53,200 | |
Working Notes | ||
Indian rate of Tax 24.6454 ( 7,33,200/e 29,75,000 × 100) | 24.6454 | |
Foreign Rate of Tax | 15.00 |
Question 10.
Mrs. Kareena, an individual resident, and citizen of India earned remuneration in the foreign currency from an enterprise in a foreign country during her stay in that country in the previous year 2020-21. There is no DTAA in that country. The remuneration was ₹ 8,00,000 and ₹ 1,60,000 was deducted at source by the enterprise. Income from other sources of Mrs. Kareena in India was ₹ 2,00,000.
Compute the relief available to her u/s 91 assuming that Mrs. Kareena f brings ₹ 3,00,000 in India in convertible foreign exchange by 30th September 2020. Also, compute the taxable income and tax liability of Mrs. Kareena for the Assessment Year 2021-22.
Answer:
Computation of Tax liability for Mrs. Kareena for Assessment Year 2021 -22
Particulars | Amount (₹) | Amount (₹) |
Foreign Income | 8,00,000 | |
Indian Income | 2,00,000 | |
Gross Total Income/Total Income | 10,00,000 | |
Tax Liability | ||
a. On Income up to ₹ 2,50,000 | – | |
b. On Income between ₹ 2.5 lacs to ₹ 5 lacs | 12,500 | |
c. On Income between ₹ 5 lacs to ₹ 10 lacs | 1,00,000 | |
1,12,500 | ||
Add:H&EC@4% | 4,500 | 1,17,000 |
Less Relief under section 91 | ||
Lower of the following: | ||
a. Doubly Taxed Income × Indian Rate of Tax ( 8,00,000 × 11.70) | 93,600 | |
b. Doubly Taxed Income X Foreign rate of ( 8,00,000 × 20%) | 1,60,000 | |
Relief u/s 91 | 93,600 | |
Net Tax Liability | 23,400 | |
Rounded off to nearest of 10 u/s 288B | 23,400 | |
Working Notes: | ||
Indian Rate of Tax ( 1,17,000/e 10,00,000 × 100) | 11.70 | |
Foreign Rate of Tax ( 1,60,000/e 8,00,000 × 100) | 20.00 |
Question 11.
Arvind, a textile merchant, and resident Indian is doing business in India and abroad. During the previous year 2020-21, he disclosed the following information:
Figures in ₹
Income from a business in India 27,00,000
Income from a business in country A with which India does not have
Agreement for avoidance of double taxation 15,00,000
Income Tax levied by Government in country A 5,00,000
Loss from business in country B with which also India does not have
Agreement for avoidance of double taxation (4,00,000)
Contribution to Public Provident Fund 1,50,000
Payment of Life Insurance Premium on the life of his 20,000 father and Mother
Compute the tax liability of Arvind for the Assessment Year 2021-22.
Answer:
Computation of Tax Viability of Mr. Arvind for Assessment Year 2021-22
Particulars | Amount(₹) | Amount(₹) |
Income from a business in India. | 27,00,000 | |
Income from Foreign country A | 15,00,000 | |
Loss from foreign Country B being set off | -4,00.000 | |
Gross Total Income | 38,00,000 | |
Less: Deductions under Chapter VIA | ||
u/s 80C (PPF) (LIP does not qualify here as Parents life) | 1,50,000 | |
Total Income | 36,50.000 | |
Tax Liability | ||
On Income up to ₹ 2.5 lacs | – | |
Income between 2.5 lacs- ₹ 5 lacs, Tax 5% | 12,500 | |
Income between 5 lacs to 10 lacs, Tax 20% | 1,00,000 | |
Income above ₹ 10 lacs, Tax @ 30% | 7,95.000 | |
9,07,500 | ||
Add: H & EC 4% Less: Relief u/s 91 | 36,300 | 9,43,800 |
Lower of the following | ||
Doubly Taxed Income X Indian Rate of Tax (Only Country A)( ₹ 1500000 × 25.8575%) | 3,87,862 | |
Doubly Taxed income X Foreign Rate of Tax (Only Country A)( ₹ 1500000 × 33.3333%) | 5.00.000 | |
Therefore, Relief u/s 91 | 3,87,862 | |
Net Tax liability | 5,55,938 | |
Rounded off to nearest of ₹ 10 u/s 288B | 5,55,940 | |
Working Notes | ||
Indian Rate of Tax (₹ 9,43,800/₹ 36,50,000 × 100) | 25.8575 | |
Foreign Rate of Tax (₹ 5,00,000/₹ 15,00,000 × 100) | 33.3333 |
Question 12.
Usha, aged 50 years, a resident in India for the previous year 2020-21 receives a professional fee of ₹ 4,50,000 for rendering services outside India. A tax of ₹ 1,20,000 was deducted at source in the country with which India does not have any double taxation avoidance agreement. She incurred ₹ 1,60,000 as an expenditure for earning this fee. She has income from other sources in India amounting to ₹ 2,50,000. Compute the tax liability and relief under section 91 of Income-tax Act, 1961.
Answer:
Computation of Tax liability for Usha for the Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Gross amount received from a foreign country | 4,50,000 | |
Less: Expenses incurred to earn such income | -1,60,000 | 2,90,000 |
B. Indian Income (Income from other sources) | 2,50,000 | |
C. Gross Total Income/Total Income | 5,40,000 | |
Tax Liability | ||
₹ 0 to ₹ 2.5 lacs | – | |
₹ 2.5 lacs to ₹ 5 lacs, Tax @ 5% | 12,500 | |
₹ 5 lacs to ₹ 10 lacs, tax @ 20% | 8,000 | |
Sub Total | 20,500 | |
Add: H & EC @ 4% of tax | 820 | 21,320 |
Less-. Relief u/s 91 | ||
ie. Unilateral Relief | ||
Lower of the following: | ||
Doubly Taxed Income X Indian Rate of Tax (₹ 2,90,000 × 3.9481%) | 11,449
|
|
Doubly Taxed Income X Foreign rate of tax (₹ 2,90,000 × 26.6667%) | 77,333 | |
Relief | 11,449 | |
Net Tax liability | 9,871 | |
Rounded off to nearest of ₹ 10 u/s 288B | 9,870 | |
Working Notes: | ||
Indian Rate of Tax | 4% | |
(₹ 21,320/₹ 5,40,000 × 100) | ||
Foreign Rate of Tax | 27% | |
(₹ 1,20,000/₹ 4,50,000 × 100) |
Question 13.
Mr.Beeta, aged 30 years, resident in India and a musician derived income of ₹ 5,00,000 from concerts performed outside India. A tax of ₹ 1,00,000 was deducted at the source in the country where the concert was given by Mr.Beeta. India does not have any agreement with that country for the avoidance of double taxation. Indian income of Mr. Beeta during the year was ₹ 3,00,000. Work out the amount of tax payable and relief due to him under section 91 for the Assessment Year 2021-22.
Answer:
Computation of Tax liability for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Foreign Income | 5,00,000 | |
Indian Income | 3,00,000 | |
Gross Total Income/Total Income | 8,00,000 | |
Tax Liability | ||
On Income upto ₹ 2,50,000 | – | |
Income between 2.5 lacs to 5 lacs@ 5% | 12,500 | |
Income between ₹ 5 lacs to ₹ 8 lacs @ 20% | 60,000 | |
Total | 72,500 | |
Add: H & EC @ 4% | 2,900 | 75,400 |
Less: Relief under section 91 | ||
Lower of the following: | ||
Doubly Taxed Income X Indian Rate of Tax | 47,125 | |
₹ 5,00,000 X 9.4250% | ||
Doubly Taxed Income X Foreign Rate of Tax | 1,00,000 | |
₹ 5,00,000 × 20% | ||
Therefore, Relief u/s 91 | 47,125 | |
Net Tax Liability | 28,275 | |
Rounded off to nearest of ₹ 10 u/s 288B | 28,280 | |
Working Notes: | ||
Indian Tax Liability (₹ 75400/ ₹ 8,00,000 × 100) | 9.4250 | |
Foreign Tax liability (₹ 1,00,000/₹ 5,00,000 × 100) | 20.00 |
Question 14.
Compute the amount of tax relief under section 91(1) and of tax payable by the assessee, an Indian resident, aged 50 years having following incomes during the Previous Year 2020-21:
a. Business income in India: ₹ 5,50,000
b. Business income in Country A of ₹ 2,00,000 on which tax was deducted in the foreign country by the Government of ₹ 50,000
c. Loss from business in country B: ₹ 1,00,000
(Note: Government of India does not have any Double Taxation Avoidance Agreement with either Country A or Country B.)
Answer:
Computation of tax liability & relief u/s 91 for Assessment Year 2021-22
Particulars | Amount (₹) | Amount (₹) |
Income from Business in India | 5,50,000 | |
Income from business in Country A | 2,00,000 | |
Loss from business in Country B | -1,00,000 | |
Gross Total Income/Total Income | 6,50,000 | |
Tax liability | ||
On income upto ₹ 5 lacs | 12,500 | |
On income between ₹ 5 lacs to ₹ 6.5 lacs | 30,000 | |
42,500 | ||
Add: H&E @ 4% | 1,700 | 44,200 |
Less: Relief u/s 91 | ||
Doubly Taxed Income × Indian Rate of Tax | ||
₹ 2,00,000 X 6.8% | 13,600 | |
Doubly Taxed Income × Foreign Rate of Tax | ||
₹ 2,00,000 X 25% | 50,000 | |
Relief u/s 91 | 13,600 | |
Net Tax liability | 30,600 | |
Rounded off to nearest of ₹ 10 u/s 288B | 30,600 | |
Working Notes: | ||
Indian Rate of Tax (₹ 44,200/₹ 6,50,000 × 100) | 6.80 | |
Foreign Rate of Tax (₹ 50,000/₹ 2,00,000 × 100) | 25.00 |
Question 15.
Discuss the modes of granting relief under avoidance of double taxation agreements.
Answer:
Primarily there are two modes of granting relief under the bilateral agreements le. DTAAs with respect to doubly taxed income:
a. Exemption method:
Under this method, the income from various specified sources which j are likely to be taxed in both the countries is taxed only in one of the two countries.
b. Tax Credit method:
Under this method, the assessee is liable to have his income taxed in both countries. The home country calculates the tax after including the income earned in the source country. Thereafter, the home j country allows deduction of the tax paid in the source country from j the tax payable in its country.
Question 16.
Discuss the scope of the provisions the Central Government may make under section 90A(1) of the Income-tax Act, 1961 in respect of an agreement between specified associations.
Answer:
The provisions of section 90A are the same as of section 90. The only modification is that the power to enter into DTAA has been granted to any specified association in India, with any specified association in the specified territory outside India. Such DTAA shall be applicable only if the same has been adopted by Central Government by notification in the official gazette. Specified Association means any institution, association, or body, whether incorporated or not, functioning under any law and which may be notified as such by Central Government.
Question 17.
Write a short note on unilateral relief u/s 91 of Income-tax Act, 1961.
OR;
Question 18.
A resident of India has paid tax in a foreign country in respect of his income which accrued in that country. India has no double taxation avoidance agreement with that country. Such income is also taxable in India. Is there any relief available to him in respect of the tax paid by him? Explain.
OR;
Question 19.
Under what circumstances can Unilateral Relief be granted to avoid Double Taxation under section 91 of Income-tax Act, 1961?
Answer:
Unilateral Relief under section 91 of Income-tax Act, 1961 is allowed where no double taxation avoidance agreement exists between the Indian Government and the Government of another country.
The assessee shall be allowed relief in respect of such income under section 91 provided all the following conditions are fulfilled:
a. The assessee is Resident in India during the relevant previous year.
b. The income accrues or arises to him outside India during that previous year.
c. Such income is not deemed to accrue or arise in India during the previous year.
d. The income in question has been subjected to tax in the foreign country in the hands of the assessee and the assessee has paid tax on such income in the foreign country.
e. There is no agreement under section 90 for the relief or avoidance of double taxation between India and the other country where the income has accrued or arisen.
In such a case, the assessee shall be entitled to a deduction from the Indian income tax payable by him. The deduction would be a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax in said country, whichever is lower.
In other words, lower of the following sums shall be deductible from the Indian Income Tax-.
- Doubly Taxed Income × Indian rate of tax
- Doubly Taxed Income × Rate of tax paid in another country
Question 20.
Define Tax Treaty. Discuss the principal objectives of Indian Tax Treaties.
Answer:
Tax Treaty: A Tax treaty is a bilateral agreement made by two countries I to resolve issues involving double taxation of passive as well as active income Tax treaties generally determine the amount of tax that a country can levy on a taxpayer’s income/capital. It is also called a Double Taxation Avoidance Agreement.
The principal objectives of India Tax Treaties are as under:
(1) For granting relief in respect of:
CL Income on which tax has been paid both under the Income-tax Act, 1961 and Income-tax Act prevailing in the other country; or
b. Income-tax chargeable under the Income-tax Act, 1961 and under the law in force in that country to promote mutual economic relations, trade, and investment; or
(2) For the avoidance of double taxation of on income under the Income-tax Act, 1961 and under the corresponding law in force in that country; or
(3) For exchange of information for the prevention of evasion or avoidance of Income-tax chargeable under the Income-tax Act, 1961 or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or
(4) For recovery of income tax under Income-tax Act, 1961 and under the corresponding law in force in that country.
Tax Treaties – Unilateral And Bilateral Relief Notes
- The concept of double taxes arises as tax is charged on both, on basis of residential status of the assessee as well as on the basis of source of income of the assessee.
- There could be mitigation of double taxes as per the Double Taxation Avoidance Agreement (DTAA), if such agreement exists between India and the other country in which income has been taxed doubly. In such cases relief for doubly taxed income is given on the basis of either “Tax Credit clause” or “Exemption clause” or any other clause – as mentioned in the DTAA between two countries with respect to that specific income.
(Of course, students are not expected to know any of the DTAA specifically, but sums could be asked where either of the simple clauses is to be interpreted and relief is to be computed. Illustrations for the same are given in Q.l & Q.2 below.). In the Indian scenario, these DTAAs are permitted to be entered into as per provisions of section 90/90A of Income-tax Act, 1961.
- In case DTAA does not exist between India and other country’s Govern¬ment from which there is a doubly taxed income, then tax is mitigated/ relief is availed as per section 91 of Income-tax Act which deals with “Unilateral Relief”. As per section 91 of the Income-tax Act, such relief is to the extent of lower of the following:—
(a) Doubly taxed Income X Indian rate of tax; or;
(b) Doubly Taxed Income X Foreign rate of tax - NOTE: As per new section 115BAC inserted by Finance Act, 2020, an individual can compute tax liability either as per normal rates of tax OR; he may opt for ALTERNATIVE TAX rates. However, if he opts for ALTERNATIVE TAX RATES, he cannot claim multiple allowances and deductions including deductions of Chapter VI-A (Except a few).
While solving questions here, WE HAVE SOLVED as per NORMAL RATES of tax and hence claimed deductions of Chapter VI-A.
Author’s Opinion:
Unless otherwise mentioned in the Exam, do tax liability computation as per normal rates of tax.