Section 90 of the Income Tax Act: A Comprehensive Guide

When earning foreign income, Indian taxpayers often face a challenge: double taxation. Fortunately, the Income Tax Act includes provisions such as Section 90, Section 90A, and Section 91, which provide relief from being taxed twice. Understanding these sections is crucial for international income earners, professionals, and business owners with overseas operations.

Additionally, professionals working abroad or earning income from foreign sources must consider other statutory deductions like professional tax tax while computing their overall tax liability. Although state governments in India levy professional tax, it plays a role in the broader picture of income reporting and tax compliance. 

Understanding Double Taxation and Relief

What is Double Taxation?

Double taxation means the same income is taxed in two countries. This commonly happens when a person resides in India but earns income from another country. Both India and the foreign country may try to tax that income, leading to a financial burden.

The Impact of Double Taxation on Individuals with Foreign Income

Double taxation reduces net income and creates confusion. For example, if you’re a salaried employee working in Dubai for part of the year and also earning rental income in India, both countries may tax your earnings. This affects your income tax calculation on salary and other global income.

Double Taxation Avoidance Agreements (DTAAs)

To address this, India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. These agreements provide a framework to decide which country gets the right to tax which income and offer relief through exemptions or tax credits.

Section 90 of the Income Tax Act: A Detailed Explanation

Overview of Section 90

Section 90 of Income Tax Act provides relief from double taxation for Indian residents earning income from countries with which India has a DTAA. The relief can be in the form of a tax exemption or a credit for foreign taxes paid.

This section is relevant for:

• Salaried professionals working abroad.
  
• Investors in global mutual funds or stocks.
  
• NRIs earning income in India and abroad.
  
• Freelancers and consultants with foreign clients.
  

Eligibility Criteria for Relief under Section 90

To claim benefits under Section 90 Income Tax Act, the taxpayer must:

• Be a resident in India during the financial year.
  
• Have earned income that is taxed in both India and the foreign country.
  
• Pay taxes in the foreign country.
  
• Ensure the foreign country has a DTAA with India.
  

Types of Relief Available under Section 90 Income Tax Act

Exemption Method

This method excludes the foreign income from taxation in India if it’s already taxed in the foreign country. For example, if your salary is taxed in the UK, India may exempt it.

Credit Method

India taxes global income, but under the credit method, tax paid in a foreign country is allowed as a deduction from the Indian tax liability. So, you do not pay tax twice.

Documentation Required for Claiming Relief under Section 90 Income Tax Act

You must provide:

• Tax residency certificate (TRC) from the foreign country.
  
• Proof of foreign income, such as payslips, invoices, or dividend statements.
  
• Tax paid certificates from the foreign jurisdiction.
  
• Form 67, which is essential to claim the foreign tax credit.
  

Computation of Relief under Section 90

Step-by-step Calculation Example

Let’s say:

• You earned ₹10 lakhs in the UK and paid ₹2 lakhs tax there.
  
• Your Indian tax on this income is ₹2.5 lakhs.
  

Under Section 90, you can claim ₹2 lakhs as credit, and only pay the balance ₹50,000 in India.

Steps:

1. Compute total income (Indian + foreign).
   
2. Calculate total Indian tax liability.
   
3. Deduct foreign tax paid (limited to the Indian tax on that foreign income).
   

Illustrative Case Studies of Section 90 Application

Case Study 1: Freelance IT consultant

Let’s say person A is an Indian resident offering freelance IT services to US clients. He pays 15% tax in the US. At year-end, he includes this foreign income in his Indian return and claims credit using Form 67, reducing his Indian tax burden under Section 90 Income Tax Act.

Case Study 2: NRI with dual income

Person B, a resident returning from Singapore, earns rental income from her flat in Mumbai and residual income from her old job in Singapore. She claims tax credit on the salary taxed in Singapore under the DTAA with India.

Section 90A of the Income Tax Act

What is Section 90A?

Section 90A is a newer provision introduced to deal with countries or specified territories with which India has signed bilateral agreements, not DTAAs. These agreements are often more limited in scope and typically apply to economic cooperation or trade agreements.

This section allows Indian residents to claim tax relief from such countries.

Key Differences between Section 90 and 90A

Aspect	Section 90	Section 90A
Applies to	DTAA Countries	Specified Territory Agreements
Relief	Comprehensive	Limited or Specific
Focus	Double Taxation	Economic & Tax Cooperation

Conditions for Claiming Relief under Section 90A

• The taxpayer must be a resident in India.
  
• The agreement must be between India and a notified territory (like Hong Kong or Macau).
  
• Relief should be claimed only if the territory has notified of cooperation.
  

Computation of Relief under Section 90A

The tax relief computation method (exemption or credit) remains similar to Section 90. However, it’s limited to the terms of the agreement. Always refer to the official treaty document.

Section 91 of the Income Tax Act

Overview of Section 91

Section 91 of Income Tax Act provides unilateral relief for Indian residents earning income in countries without a DTAA. This is important when no agreement exists, but double taxation occurs.

Relief Provided Under Section 91

This section grants a deduction on the foreign tax paid, calculated as:

Lower of:

• Indian tax payable on that income, or
  
• Foreign tax paid
  

Determining the Method of Relief under Section 91 (considering DTAAs)

Relief under Section 91 is applicable only when no DTAA exists between India and the foreign country. If a DTAA is in place, Section 90 or 90A should be used first. Section 91 is a fallback mechanism, providing unilateral tax relief to avoid double taxation.

Computation of Relief under Section 91

Let’s say:

• You earn ₹5 lakhs in a country with no DTAA.
  
• You pay ₹60,000 tax there.
  
• Indian tax on the same income is ₹50,000.
  

You can claim ₹50,000 as relief (lower of the two).

Illustrative Case Studies of Section 91 Application

Case Study: Indian photographer in Africa

Person A, an Indian photographer, earned ₹4 lakhs in a non-DTAA African country and paid ₹40,000 in taxes. Indian tax on this is ₹35,000. Amit can claim ₹35,000 relief under Section 91 of Income Tax Act.

Form 67 and Claiming Foreign Tax Credit

What is Form 67?

Form 67 is a mandatory form introduced by the Income Tax Department for claiming foreign tax credit under Section 90, 90A, or 91. It must be submitted online through the Income Tax e-filing portal.

How to Fill Form 67

• Log in to the Income Tax portal.
  
• Go to “e-File” > “Income Tax Forms” > “File Income Tax Forms.”
  
• Select Form 67.
  
• Provide details of foreign income, tax paid, country, and DTAA clause (if any).
  
• Attach supporting documents.
  

When to File Form 67

Form 67 must be filed on or before the due date of filing your Income Tax Return (typically July 31st). Filing it late can result in the denial of your claim for foreign tax credit.

Penalties for Non-Compliance

Penalties for Non-Disclosure of Foreign Income

Under the Black Money Act, failing to disclose foreign income or assets can attract a penalty of ₹10 lakhs per default and prosecution.

Penalties for Incorrect Reporting of Foreign Income

Incorrectly claiming foreign tax relief or misreporting income may attract:

• Interest under Sections 234A/B/C
  
• Penalty under Section 270A (up to 200% of tax under-reported)
  

Penalties related to Documentation and Record-Keeping

If you fail to maintain documentation (like TRC or Form 67), the relief may be denied, and penalties under Section 271J may apply for inaccurate reporting.

Conclusion

Navigating foreign income taxation can be tricky, but Sections 90, 90A, and 91 of the Income Tax Act help simplify this process. Whether you’re a salaried NRI, a freelancer with international clients, or a businessperson investing overseas, claiming appropriate relief ensures you avoid unnecessary tax payments.

Understanding and using tools like Form 67, knowing about DTAAs, and keeping proper documentation are essential. If you’re ever in doubt, consult a share market advisor or a direct tax expert to stay compliant and maximize your earnings.

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