What is Section 90 of the Income Tax Act?
The Indian Income Tax Act, 1961, acknowledges the complexities arising from cross-border income. For this reason, Section 90 of the Income Tax Act allows the Government of India to enter into agreements with foreign countries or specified territories to avoid double taxation and ensure smoother taxation of international income.
In simpler terms, Section 90 provides bilateral relief from double taxation, which means if you're a resident of India & you've already paid taxes on income in a foreign country, you can claim a deduction or credit while filing your Indian tax return. "
Why Was Section 90 Introduced?
With globalisation on the rise, many Indian residents earn income from abroad, whether as salaried employees, freelancers, or business owners. Without relief, such taxpayers would be taxed twice—once in the country of origin & again in India. This is known as double taxation, & matters involving double taxation can be resolved under the provisions of Section 90.
To prevent this injustice and to encourage cross-border trade & economic ties, India has entered into Double Taxation Avoidance Agreements (DTAs) with more than 90 countries. "
Who Can Claim Relief Under Section 90?
This is a resident-centric provision. The relief applies exclusively to Indian residents, including individuals, companies, & other entities.
→ Relief under this section may be claimed by an Indian resident, provided:
- The income in question has already been taxed in the foreign country.
- India has signed a DTAA with that country.
- Proper documentary proof, like a tax paid certificate or Form 67, is submitted while filing the return.
Types of Relief Available Under Section 90
Section 90 provides two types of relief mechanisms for taxpayers:
- Exemption Method:
In this, a certain type of income is entirely exempt in one country, & is taxed only in the other.
Example: If royalty income is exempt in India due to DTAA, you pay tax only in the foreign country. - Tax Credit Method:
In this, the income is taxed in both countries, but you can claim credit for the foreign tax paid while filing your return in India.
Subsection 4 of Section 90 of the Income Tax Act
Subsection 4 of Section 90 makes it mandatory for the taxpayer to file a return and submit prescribed documents, including Form 67, to avail the benefit of DTAA. Without furnishing these documents, the claim for relief may not be accepted by the assessing officer.
Recent Developments and Amendments in Section 90 of the Income Tax Act 2023
The amendment in section 90 of the Income Tax Act 2023 aims to make the process more transparent and compliance-friendly. The new rules streamline the way taxpayers declare foreign income and claim relief, ensuring better alignment with international taxation practices.
Also, taxpayers are now being nudged to disclose foreign assets and income more clearly, failing which penalties may apply.
Example of Relief Under Section 90
Let’s take a simple case.
- Riya, an Indian resident, earns ₹5,00,000 from freelance services provided to a company in Germany.
- Germany deducts 15% tax (₹75,000) at source.
- Under the DTAA between India and Germany, the same income is also taxable in India.
- While filing her return in India, Riya reports ₹5,00,000 as foreign income.
- The tax payable in India is ₹1,00,000, but since she’s already paid ₹75,000 in Germany, she can claim that amount as a foreign tax credit.
- So she pays only the balance ₹25,000 in India under relief under section 90 of the Income Tax Act.
Common Errors to Avoid While Claiming Relief
- Not filing Form 67 before the due date.
- Failing to attach proof of tax paid in the foreign country.
- Claiming relief under Section 90 without verifying if India has a DTAA with that country.
Difference Between Section 90 and Section 91
While Section 90 deals with bilateral relief through DTAA agreements, Section 91 deals with unilateral relief. If India doesn’t have a DTAA with a country, Section 91 provides partial relief.
Conclusion
Section 90 of the Income Tax Act is a powerful provision that protects Indian residents from being unfairly taxed twice on the same income. By offering relief through agreements with foreign countries or specified territories, it encourages international trade & simplifies compliance.
Whether you're a salaried employee, a freelancer working for international clients, or a business owner with global operations, understanding and using Section 90 of the Income Tax Act 1961 can lead to significant tax savings and peace of mind.
