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Double
Taxation Relief (DTA)
Introduction
Double taxation means taxation of same income of a person
in more than one country. This results due to countries
following different rules for income taxation. There
are two main rules of income taxation i.e. (a) Source
of income rule and (b) residence rule
As
per source of income rule, the income may be subject
to tax in the country where the source of such income
exists (i.e. where the business establishment is situated
or where the asset/property is located) whether the
income earner is a resident in that country or not.
On
the other hand, the income earner may be taxed on the
basis of his/her residential status in that country.
For example, if a person is resident of a country, he
may have to pay tax on any income earned outside that
country as well.
Further,
some countries may follow a mixture of the above two
rules.
Thus
problem of double taxation arise if a person is taxed
in respect of any income on the basis of source of income
rule in one country and on the basis of residence in
other country or the basis of mixture of above two rules.
In
India, the liability under the Income-tax Act arises
on the basis of the Residential Status of the assessee
during the previous year. In case the assessee is resident
in India, he also has to pay tax on the income which
accrues or arises outside India, and also received outside
India. The position in many other countries being also
broadly similar, it frequently happens that a person
may be found to be a resident in more than one country
or that the same item of his income may be treated as
accruing, arising or received in more than one country
with the result that the same item becomes liable to
tax in more than one country. To prevent this hardship
Double Taxation Relief is provided.
Double
Taxation Relief provisions in India
The
Central Government may enter into an agreement with
the Government of any country outside India to provide
for the following:
-
a
relief in respect of income on which have been paid
both income-tax under this Act and income-tax in
that country, or
-
the
type of income which shall be chargeable to tax
in either country so that there is avoidance of
double taxation of income under this Act and under
the corresponding law in force in that country.
In
addition, the Central Government may enter into an agreement
to provide:
-
for
exchange of information for the prevention of evasion
or avoidance of income-tax chargeable under this
Act or under the corresponding law in force in that
country or investigation of cases of such evasion
or avoidance or
-
for
recovery of income-tax under this Act and under
the corresponding law in force in that country
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