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A resident pays income-tax on foreign income in a country with which India has no agreement under section 159. Under section 160 of the Income-tax Act, 2025, at what rate is the deduction from…

Question and options

A resident pays income-tax on foreign income in a country with which India has no agreement under section 159. Under section 160 of the Income-tax Act, 2025, at what rate is the deduction from Indian tax calculated on the doubly taxed income, where the two rates differ?

  1. The lower of the Indian rate and the foreign rate

  2. The Indian rate of tax

  3. The higher of the Indian rate and the foreign rate

  4. The foreign country's rate of tax

Answer and explanation

Correct answer: A - The lower of the Indian rate and the foreign rate

Section 160(1) of the Income-tax Act, 2025 gives a resident unilateral relief by deducting from Indian tax a sum calculated on the doubly taxed income at the Indian rate or the foreign rate, whichever is lower, and at the Indian rate if both are equal. Using the higher rate would let foreign tax reduce Indian tax on other income.

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