How relief is calculated under sec 90 for USA tax paid?
Sneha , Ahmedabad
This question is important for most of executives or professionals or others who remain resident in India under I T Act and earns income in other countries during the financial year. Therefore , they suffer double taxation-one in a foreign country and other in India. Income tax Act provides relief to those who have paid tax outside and are required to pay tax again in India. This posting is purely on computation part of relief claimable u/s 91 of the I T Act.
Let us say you earn taxable X amount in India
You earned Y amount in USA .
You paid Z amount in USA on Y amount.
Let us say tax at Indian rate on total income(X+Y) is T
Therefore rate of tax on on the doubly taxed income has to be find out
1. The rate of tax in India = T x 100 /(X +Y) %
2. The rate of tax for foreign income = Y / (X+Y).
Then relief u/s 91 shall be as at the lower of rate found out at Step 1 or Step 2.
Let us understand it with example
Let us say , a person Mr X below 65 years , goes abroad for there months and earns income of Rs. 10,00,000 which is taxed in the foreign country .The foreign country deducted tax of Rs 3,00,000. Mr X has also income in India .Say in India he earns income of Rs 5,00,000. Irrespective of DTAA signed between India and that foreign country , X can claim relief for double taxation. The computation of relief u/s 90 or 91 for Fy 2008-09 shall be as under :
Income earned outside Rs 10,00,000
Income earned in India Rs 5,00,000
Total income taxable in India for a Resident 15,00,000
Tax in FY 2008-09 4,02,215
Rate of tax in India 4,02,215 x 100 / 15,00,000 = 26.81 %
Rate of tax for foreign income = 1000000 x 100 /1500000 = 66.66 %
The lower of rate of tax will be rate of relief of tax is 26.81 %
Relief u/s 91 should be 10,00,000 x 26.81 = Rs 2,68,100
Therefore, although Mr X paid Rs 3,00,000 outside , the relief can be claimed upto Rs 2,68,143 only.
Relevant readings
Is Capital Gains Earned Out Side India Taxable in India?
No Refund of tax paid in other country
Is Salary Earned In Singapore Taxable In India?
Can One Claim Relief For Tax Paid In A Country With Which India Has No DTAA?
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