Double Taxation Relief and Foreign Tax Credit: A Complete Practical Guide for Indian Assessees

Indian residents increasingly earn income from overseas sources—salaries, dividends, interest, royalties, capital gains, or business profits. Because India taxes global income of residents, this foreign-sourced income may be taxed both in the country where it arises and again in India, leading to double taxation.

The Income-tax Act 1961, read with India’s Double Taxation Avoidance Agreements, provides mechanisms to mitigate this burden through Foreign Tax Credit (FTC) and double taxation relief, either under treaties (Section 90/Section 90A) or unilaterally (Section 91) where no treaty exists.

This guide explains:

  • When and how double taxation arises
  • Treaty-based (Section 90, Section 90A) and unilateral (Section 91) relief
  • Eligibility and documentation (TRC, Form No. 10F, Form No. 10FA, Form No. 10FB)
  • Computation and timing of FTC, including currency conversion rules
  • Step-by-step procedure to file Form 67
  • Key concepts in a typical DTAA

All references are based on the Income-tax Act 1961 as amended by the Finance Act 2026.

1. Concept of Double Taxation Relief

1.1 Why double taxation occurs

A person who is resident in India is taxable in India on his global income, irrespective of where the income is earned or received. At the same time, the foreign country where the income arises may also levy tax on that income on a source basis.

Example:

  • Mr. Sharma, resident in India, earns salary from an employment in Country X and pays tax there.
  • As a resident, Mr. Sharma must also report this foreign salary income in his Indian return.
  • Without any relief, the same income would be taxed twice—once in Country X and again in India.

To avoid this hardship, the law allows the assessee to claim credit for foreign taxes paid, commonly known as Foreign Tax Credit (FTC), subject to prescribed conditions.

1.2 Types of double taxation relief

Double taxation relief in India is available in two broad ways:

  1. Treaty-based relief (Bilateral relief):

    • Applicable where India has signed a Double Taxation Avoidance Agreement (DTAA) with the foreign country or specified territory.
    • Governed by Section 90 and Section 90A.

  2. Unilateral relief:

    • Available where income is taxed in a foreign country with which India has no DTAA.
    • Governed by Section 91.

2. Treaty-Based Relief under Section 90 and Section 90A

2.1 Overriding effect of DTAA

Where the Central Government has entered into a DTAA with another country or specified territory, then, for an assessee covered by that agreement:

  • The Income-tax Act 1961 and the DTAA are compared.
  • The more beneficial provision to the assessee prevails.

In other words:

If the DTAA provision is more favourable than the domestic law, the DTAA overrides the Act to that extent, and vice versa.

This ensures the assessee is not disadvantaged by overlapping rules.

2.2 Interpretation of terms used in DTAA

Any term used in the DTAA is interpreted as follows:

  1. Where term is defined in DTAA

    • The meaning given in the agreement itself is followed.

  2. Where term is not defined in DTAA:

    • If defined in the Income-tax Act 1961, it takes the meaning assigned there, including any government-issued explanations.
    • If not defined in the Act and the context does not require otherwise, the meaning notified by the Central Government applies, provided:
      • It is not inconsistent with the provisions of the Act or the DTAA, and
      • It is deemed to have effect from the date the agreement came into force.

2.3 Typical structure of a DTAA

Most DTAAs follow a broadly similar pattern, and usually contain articles specifying, among others:

  • Article 1: Personal Scope
  • Article 2: Taxes Covered
  • Article 3: General Definitions
  • Article 4: Resident
  • Article 5: Permanent Establishment
  • Article 6: Income from Immovable Property
  • Article 7: Business Profits
  • Article 8: Shipping and Air Transport
  • Article 9: Associated Enterprises
  • Article 10: Dividends
  • Article 11: Interest
  • Article 12: Royalties and Fees for Technical Services
  • Article 13: Capital Gains
  • Article 14: Independent Personal Services
  • Article 15: Dependent Personal Services
  • Article 16: Directors’ Fees
  • Article 17: Artistes and Sportspersons
  • Article 18: Non-Government Pensions
  • Article 19: Government Service
  • Article 20: Teachers, Students, and Trainees
  • Article 21: Other Income
  • Article 22: Capital
  • Article 23: Relief from Double Taxation
  • Article 24: Non-Discrimination
  • Article 25: Mutual Agreement Procedure
  • Article 26: Exchange of Information
  • Article 27: Diplomatic and Consular Privileges
  • Article 28: Entry into Force
  • Article 29: Termination

For invoking treaty relief, the assessee must satisfy residency conditions, documentation requirements, and specific article conditions (e.g., beneficial ownership for dividends/interest/royalty, presence of permanent establishment for business profits, etc.).

3.1 Non-resident claiming DTAA benefit in India

A non-resident who seeks to rely on a DTAA to reduce Indian tax or claim relief must:

  • Obtain a Tax Residency Certificate (TRC) from the government (tax authority) of his country of residence; and
  • Furnish prescribed additional particulars electronically in Form No. 10F, unless such particulars are already contained in the TRC and e-filing exemption (if any) applies.

Without a valid TRC (and Form No. 10F where required), treaty benefits may be denied by the Indian authorities.

3.2 Indian resident seeking TRC for foreign relief

An Indian resident who wishes to claim treaty benefits in the source country may need to produce an Indian TRC there. For this purpose: