Double Taxation Relief for NRIs and Cross-Border Income
Section 90, 90A and 91 relief · treaty tie-breakers · residency certificates and Form 10F · foreign tax credit under Rule 128 and Form 67
Why Relief Claims Fail on Documentation
Double taxation relief fails on paperwork far more often than on principle. The entitlement is rarely in doubt: a treaty exists, the income falls within an article, the rate is lower than the domestic one. What goes wrong is that the residency certificate covers the wrong period, the declaration was never filed, the foreign tax credit form was submitted late, or the evidence of foreign tax paid does not match the year being claimed.
The consequence is disproportionate. A claim that is right in substance but unsupported in form is simply denied, and the taxpayer pays the full domestic rate on income that has already been taxed abroad. Assembling the documentation before the claim is made, rather than in response to a query, is most of what this work consists of.
N D Savla & Associates handles treaty claims and foreign tax credit for non-residents and for residents with overseas income, from our Pune office. This page deals with how relief is actually obtained; the treaty framework itself and how individual articles allocate taxing rights are covered in our note on double taxation avoidance agreements.
How Does Indian Law Provide Relief?
Relief comes from three provisions of the Income Tax Act, 1961, and which applies depends on whether a treaty exists with the other country.
- Section 90 — relief where India has a comprehensive agreement with the other country, which is the position for most jurisdictions where NRIs live
- Section 90A — relief under agreements adopted with specified associations rather than sovereign governments
- Section 91 — unilateral relief where no agreement exists, allowing a deduction for foreign tax at the lower of the Indian rate or the foreign rate on the doubly taxed income
Section 90(2) is the provision that makes treaties useful in practice. Where an agreement applies, the provisions of the Act apply only to the extent they are more beneficial to the taxpayer. The taxpayer therefore compares the two and takes whichever produces the better outcome for each category of income.
Which Method Applies to Which Income?
Treaties use two mechanisms, and most Indian agreements combine them across different articles.
| Mechanism | How It Works | Where It Usually Appears |
|---|---|---|
| Exemption method | Income taxed in one country is excluded from the base in the other | Certain employment income, pensions and government service |
| Full credit | Foreign tax allowed in full against domestic liability | Rare in Indian treaties |
| Ordinary credit | Foreign tax credited up to the domestic tax on that income | The general position in Indian treaties |
| Reduced rate at source | Source country agrees a rate below its domestic rate | Dividends, interest, royalties and technical services |
| Unilateral relief | Deduction at the lower of the two rates where no treaty exists | Section 91, non-treaty countries |
Who Needs Double Taxation Relief?
Four groups, with quite different practical problems.
NRIs With Indian Income Taxed at Source
Rent, interest, dividends and capital gains arising in India are taxed here and generally also in the country of residence. Where the treaty prescribes a lower Indian rate, it has to be claimed with supporting documentation, either at the point of withholding through a lower deduction certificate or afterwards through the return.
Returning NRIs With Continuing Foreign Income
Someone who has returned to India but still receives foreign pension, rent or investment income faces tax in both countries once they become ordinarily resident. Foreign tax credit becomes the operative mechanism at that point, and the credit form and evidence requirements apply from the first such year.
Individuals Who Are Resident in Two Countries
Where domestic law in both countries treats a person as resident, the treaty tie-breaker in the residence article decides which country may treat them as resident for treaty purposes. The tests run in sequence through permanent home, centre of vital interests, habitual abode and nationality, with mutual agreement as the final resort. Establishing this properly is the foundation of every other claim.
Cross-Border Employees and Assignees
Employees on assignment face split-year positions, employer withholding in two countries and social security questions alongside the tax analysis. The employment article and the days-of-presence tests within it usually determine which country may tax the salary, and the answer often differs from where the payroll sits. Arrivals into India are dealt with under recent immigrant services.
How Did India's Treaty Framework Evolve?
India now has one of the larger treaty networks in the world, built in stages that each left a mark on how relief is claimed.
A Small Network
India had agreements with a limited number of countries, negotiated principally to support trade rather than to accommodate a large expatriate population. With capital controls in place and outbound investment negligible, the practical demand for relief was modest and the machinery for claiming it correspondingly light.
Rapid Expansion
Liberalisation drove a sustained expansion of the treaty network as India sought inbound investment and Indian businesses began operating abroad. Agreements offering favourable capital gains treatment channelled a large share of foreign investment into India through particular jurisdictions, which became a defining feature of the period and eventually a policy concern.
Substance and Renegotiation
The requirement to hold a tax residency certificate from the other country was introduced to substantiate treaty claims, followed by a further declaration requirement where the certificate lacks prescribed particulars. Treaties whose capital gains articles had been used principally for treaty shopping were renegotiated, moving towards source-based taxation with grandfathering for existing investments. General anti-avoidance provisions came into force over the same period.
Multilateral Modification and Digital Claims
India's treaties were modified collectively through the multilateral instrument, which inserted a principal purpose test into a large number of agreements at once. A claim now has to survive not only the article relied upon but a test of whether obtaining the benefit was a principal purpose of the arrangement. On the administrative side, foreign tax credit was placed on a formal footing with a prescribed form and evidence requirements, and the treaty declaration moved to electronic filing.
Well Established in Principle, Demanding in Practice
The substantive question is which article applies and what it permits; the procedural question, which is where most claims fail, is whether the residency certificate, the declaration and the credit form are in place for the correct period.
What Is the Step-by-Step Process for Claiming Relief?
Steps one and two decide the outcome. The remainder is documentation, but documentation that claims fail on.
Establish Residence in Both Countries
Determine status under Indian law and under the other country's law, and where both treat the person as resident, apply the treaty tie-breaker tests in sequence.
Identify the Applicable Treaty Article
Classify each stream of income and locate the article that governs it, since dividends, interest, royalties, capital gains, employment income and pensions are each dealt with separately.
Compare the Treaty Against the Act
For each category, compute the outcome under domestic law and under the treaty, and rely on whichever is more beneficial.
Obtain the Tax Residency Certificate
Secure the certificate from the tax authority of the country of residence covering the relevant period, allowing time since some authorities take several weeks to issue it.
File the Prescribed Declaration
Where the certificate does not carry all the particulars required, furnish the declaration electronically before the claim is made.
Apply the Relief at Source Where Possible
Where Indian income is subject to withholding, put the treaty documentation before the payer, or obtain a certificate authorising deduction at the treaty rate.
Assemble Evidence of Foreign Tax Paid
For credit claims, obtain the foreign assessment, certificate of tax deducted or proof of payment, and reconcile the foreign tax year to the Indian financial year.
File the Credit Form and the Return
Submit the prescribed foreign tax credit statement with supporting evidence within the permitted period, and claim the relief in the return of income.
Step seven is where cross-border cases become genuinely awkward. Where the foreign tax year does not align with the Indian financial year, foreign tax has to be apportioned to the correct Indian year, and evidence has to be produced for a period the foreign authority does not report on. This is worked through as part of the return of income rather than left to be explained afterwards.
Where Relief Claims Commonly Fail
Four failures account for most denied claims, and none of them concern the substantive entitlement.
Missing or Mismatched Residency Documentation
The certificate is mandatory, must come from the other country's tax authority, and must cover the right period. Where it lacks the prescribed particulars the additional declaration is required as well. Both are dealt with in our note on the tax residency certificate.
Credit Form Filed Late or Not at All
Foreign tax credit is claimed through a prescribed statement filed with supporting evidence. Although the deadline was relaxed, it remains a deadline, and a credit claimed in a return without the accompanying statement is routinely disallowed.
Withholding Applied at the Treaty Rate Without Support
Payers sometimes apply a treaty rate on the strength of an assurance rather than documentation. Where the deduction is later found unsupported, the shortfall is recovered from the payer, who will look to the recipient. The deduction is reported through Form 27Q, so the rate applied is visible.
Relief Claimed on Income That Is Not Doubly Taxed
Relief presupposes that the same income has borne tax twice. Income that is exempt in India, or that falls outside the Indian charge entirely for a non-resident, needs no relief and a claim on it will not succeed. Establishing what is already outside the charge, as set out in exempt income for NRIs, should precede any treaty analysis.
Why Choose N D Savla & Associates for Treaty Relief?
This is a documentation discipline as much as a technical one, and it rewards doing the routine parts on time.
Residence Resolved Before Anything Else
We establish status under both countries' domestic law and apply the tie-breaker where both claim residence. Every subsequent step depends on this, and a claim built on an unresolved residence position will not hold.
Documentation Obtained in Advance, Annually
Residency certificates and declarations are obtained as part of the annual cycle rather than in response to a query, because certificates cannot be backdated and some foreign authorities are slow to issue them.
Relief Applied at Source Where It Can Be
Where Indian income is subject to withholding, we put the treaty position to the payer or obtain a certificate authorising the treaty rate. Relief obtained at source is worth considerably more than the same relief recovered a year later through a refund.
Foreign Tax Reconciled to the Indian Year
We reconcile foreign tax years to the Indian financial year and prepare the credit statement with evidence that supports the specific period claimed. Where concessional Indian treatment under the special provisions for non-residents produces a better result than a treaty rate, we compute both and use the better one.
Filed and Defended From Pune
Claims are filed on the income tax portal and supported through any query or assessment. Our office at Baner, Pune serves non-resident and cross-border clients across time zones.
Frequently Asked Questions on Double Taxation Relief
What is double taxation relief and how is it claimed?
It is relief from the same income being taxed twice, once where it arises and once where the recipient is resident. Where India has a tax treaty with the other country, relief is claimed under Section 90 of the Income Tax Act, 1961. Where there is no treaty, unilateral relief is available under Section 91. Relief is claimed through the return of income, supported by evidence of the foreign tax paid and, for treaty claims, by residency documentation.
What is the difference between the exemption method and the credit method?
Under the exemption method, income taxed in one country is left out of the tax base in the other, so it is effectively taxed only once. Under the credit method, the income is included in both countries but tax paid in the source country is allowed as a credit against the liability in the residence country, capped at the tax that country would have charged. Indian treaties predominantly use the credit method, with the exemption method appearing for particular categories of income.
What is Form 67 and when must it be filed?
Form 67 is the statement of foreign income and foreign tax paid required to claim foreign tax credit under Rule 128. It must be filed electronically along with evidence of the foreign tax, and the deadline was relaxed by amendment so that it may be filed by the end of the relevant assessment year rather than by the return due date. Credit is allowed against tax, surcharge and cess but not against interest, fee or penalty.
Can a taxpayer choose between the Act and the treaty?
Yes. Section 90(2) provides that where a treaty applies, the provisions of the Act apply only to the extent they are more beneficial to the taxpayer. The comparison is made provision by provision rather than as a whole, so a taxpayer may rely on the treaty for one category of income and on the Act for another, provided the treaty is applied consistently within each category.
What documentation is needed for a treaty claim?
A tax residency certificate issued by the tax authority of the country of residence for the relevant period is mandatory under Section 90(4). Where that certificate does not contain all the particulars prescribed, a declaration in Form 10F must also be furnished, and this is now filed electronically. Without both, a treaty rate applied by a payer or claimed in a return is vulnerable to being denied.
Taxed on the Same Income Twice?
Most denied claims fail on paperwork, not principle. Speak to our Pune team.
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