How to Get Double Taxation Relief?

Double taxation occurs when the same income gets taxed twice, either in two different countries or under two different tax regimes in the same country. This places an extra and unfair tax burden on taxpayers. However, India's tax laws provide certain relief measures that you can avail to reduce the impact of double taxation on your finances. 

This article will discuss what double taxation relief entails and the provisions under the Income Tax Act that offer recourse against dual taxation of income.

Understanding Double Taxation
Double taxation means taxing the same income twice. It usually happens in two scenarios:

1. Economic Double Taxation
When two different persons are taxed on the same income, it results in economic double taxation. 

For example, if a company pays dividends to its shareholders out of its post-tax profits, the dividend gets taxed again in the hands of shareholders. 

Here, the company and its shareholders pay tax on the same pool of earnings.

2. Juridical Double Taxation
When the same person ends up paying tax twice on the same source of income, juridical double taxation is caused. 

This happens in the case of dual residency when an individual resident of India also becomes a tax resident of another nation in a particular financial year. 

As both countries have taxation rights over the global income of their tax residents, the individual's foreign income gets taxed in two jurisdictions.

Double Tax Avoidance Agreements (DTAAs)
To provide relief against international juridical double taxation, India has signed Double Tax Avoidance Agreements (DTAAs) with many countries. The DTAAs determine which country will have primary taxing rights over different classifications of income arising from cross-border transactions between India and the partner country. 

The DTAAs provide the following mechanisms to eliminate dual taxation:

1. Exemption Method: The income is taxed only in one jurisdiction while the other provides an exemption. 

2. Tax Credit Method: Tax is levied in both states, but the tax paid in one nation is allowed as a credit against tax payable in the other country.

Section 90 and 90A - Tax Relief
The provisions of Sections 90 and 90A in the Income Tax Act give effect to DTAAs signed by India. They offer relief to prevent dual taxation for taxpayers qualifying as residents of India and the treaty partner country.

The key features of relief under Sections 90 and 90A are:

• Tax is charged either in India or other countries depending upon the terms of the applicable tax treaty
• The taxpayer needs a Tax Residency Certificate (TRC) from home country
• Relief is available only for specified heads of income
• There are prescribed documents needed to claim tax treaty benefits

Thus, to avoid double taxation under DTAAs, you have to present the TRC and other documents to the tax authorities to show your tax residency status in India or a treaty nation.

Unilateral Relief Under Section 91
Sometimes, double taxation may still arise despite the existence of tax treaties. This can happen if:

• There is no DTAA between India and another country 
• Income is taxable under DTAA, but other countries levy higher tax rate
• Income gets taxed due to differences in tax rules 

In such cases, you can claim unilateral tax relief under Section 91 of the Income Tax Act. Under this provision, the Central Government can notify unilateral relief from double taxation in respect of specified incomes.

The notified income will be taxable in both India and the other country. The double taxation is mitigated by allowing deductions from India's tax liability based on taxes paid abroad.

Let us understand how this unilateral relief works with an example.

Rishabh, an Indian resident, earns professional fees of Rs 20 lakhs in Country A during the financial year 2022-23. Country A levies 30% tax on the fees, i.e. Rs 6 lakhs. The fees would be taxable in India at 30%, i.e. Rs 6 lakhs. 

Now, if Section 91 relief is applicable, Rishabh can claim a deduction of Rs 6 lakhs from his India tax liability of Rs 6 lakhs against the tax paid in Country A. So, while the income gets taxed in both countries, the burden is reduced.

Relief in Case of Double Corporate Taxation
Double taxation of corporate profits happens because the income gets taxed at two levels:

1. Company level when profits are earned 
2. Shareholder level when profits are distributed as dividends

Over the years, India has introduced some relief to remove the cascading effect of economic double tax:

1. Deduction for Dividends Received 
As per Section 80M, when resident individuals or firms receive dividends from domestic companies, they can claim deductions for dividends declared from profits already taxed in companies' hands.

2. Lower/Nil Dividend Taxation
The dividend distribution tax payable by companies has been removed. For resident individual shareholders earning over Rs 10 lakhs annually, dividends are taxable at slab rates but with a rebate under Section 87A up to Rs 12,500 available for those with income below Rs 5 lakhs per annum.

3. Buyback Tax
Earlier, companies resorted to share buybacks to reward shareholders instead of dividends. This was because buybacks were considered more tax-efficient. 

However, the Finance Act 2019 levied a 20% buyback tax on companies undertaking the buyback of shares. While double taxation is still, the lower buyback tax rate reduces the burden.

For non-resident shareholders, the tax is charged at applicable slab rates for residents and tax treaties for overseas investors.

Relief in Case of Dual Residency
At times, an individual may qualify as a tax resident of India and a foreign nation during the same previous year due to differences in residency rules across countries, resulting in dual residency and double taxation. 

Section 6 of the Income Tax Act provides relief against such juridical double taxation under the residency tie-breaker rule. As per this rule, if an individual qualifies as a tax resident of India under Section 6(1) and counts as a foreign nation's tax resident under DTAA, only one nation gets taxation rights.

The tie-breaker clause in tax treaties determines the country that will avoid surrendering its taxing rights. Mostly, the country where the individual has a permanent home available or spends more time (say at least 183 days) in a fiscal year gets preference. 

Documentation Needed for Double Tax Relief 

To avail of double tax avoidance relief under Sections 90, 90A, or 91, the taxpayer has to file certain documents with the tax authorities:

1. Tax Residency Certificate 
The TRC should be on the letterhead of the foreign tax authority, bear an authorised signature and stamp, and validate your residential status.

2. Self-Attested Copy of DTAA
A self-attested copy of DTAA helps you avoid double taxation by proving that you're a resident of one country and have paid taxes on your income in that country.

3. Self-Declaration Form 
This prescribed form collects residential status details and should cover the following:

• Bona fide purpose for double tax relief claim 
• Details of a period of double taxation
• Particulars of foreign tax remittances 

4. Proof of Taxes Paid Abroad
You must furnish a self-attested copy of the overseas tax payment certificate issued by the concerned foreign tax authority.

5. Form 10F
This form provides information about the foreign income offered to tax in India, taxes paid abroad, head-wise details of income and taxes accrued or received from foreign sources, etc.

6. Return of Income
An Indian tax return reporting the foreign income and taxes paid abroad needs to be filed.

7. Form 67 
If Section 90 or 90A relief is claimed while filing a return, you must submit Form 67, providing details regarding the residence period and taxes paid abroad.

8. Lower Tax Deduction Certificate 

If the DTAA prescribes any lower tax deduction certificates, their copies must also be submitted.  

Apart from the above general documents, the specific certificates mandated under the relevant DTAA must also be filed. Further, all documents would need to be submitted in duplicate.
Key Points to Note
Here are some important points concerning double tax relief that you should keep in view:

The relief comes with stringent eligibility rules in terms of residence and scope of income covered. So, determine your eligibility under different provisions before seeking an exemption.
The claim must be made within 6 assessment years from the completion of the financial year when foreign taxes were paid.

Details furnished should be accurate, and all necessary proofs enclosed or relief requests can be rejected.
While tax treaties provide recourse, their complexities can also lead to denial of benefits. So carefully examine their fine print.

How to Claim Double Taxation Relief?
Here is the process to claim double tax relief either under DTAA or Section 91:

1. Determine income eligibility for relief
2. Find if applicable DTAA exists with other country
3. Calculate & pay taxes in both countries as per local laws 
4. File DTAA or Section 91 relief claim in India
5. Submit supporting documents like TRCs, tax computations & payments proofs 
6. Provide details, calculations & amounts eligible for relief
7. Tax authorities verify details and grant applicable relief
8. Revised tax demand is raised after granting exemptions/deductions
9. Any refund due is processed after final determination

The process is largely document-intensive. Hence, working with a tax expert can help to get double tax relief and ensure the correct determination of final tax liabilities on overseas incomes.

Conclusion
Understanding relief measures under Indian tax laws can help you mitigate the negative effects of double taxation on your income and global tax position. Study the provisions, determine eligibility, maintain documents, file returns correctly, and submit proof on time. With tax expertise, you can easily get relief from double taxation. Take proactive measures, maintain diligent records, comply with procedures, and avail allowable tax exemptions to ease the tax pain from reviewing the same income in duplicate.