A resident in India pays income-tax on foreign income in a country with which India has no double taxation agreement, and the same income is taxed in India. At what rate is the deduction from Indian…
Question and options
A resident in India pays income-tax on foreign income in a country with which India has no double taxation agreement, and the same income is taxed in India. At what rate is the deduction from Indian income-tax under section 160 of the Income-tax Act, 2025 calculated on the doubly taxed income, where the two rates differ?
The foreign rate of tax in every case
The Indian rate or the foreign rate, whichever is lower
The Indian rate of tax in every case
The Indian rate or the foreign rate, whichever is higher
Answer and explanation
Section 160(1) of the Income-tax Act, 2025 gives unilateral relief by deducting from Indian income-tax a sum calculated on the doubly taxed income at the Indian rate or the rate of the other country, whichever is lower; the Indian rate is used only when both rates are equal. Using the higher rate would let foreign tax reduce Indian tax on other income.
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