Double taxation occurs when the same income is taxed in two different countries under each country's tax rules. Bilateral relief agreements (also known as double taxation avoidance agreements or tax treaties) are entered into between two countries to provide relief from double taxation. These agreements typically use either the exemption method, which exempts the income in one country, or the tax credit method, which allows the country of residence to credit taxes paid in the source country. Unilateral relief is provided by some countries for their residents who pay foreign tax in countries they do not have a bilateral agreement with. The goal of these relief methods is to promote free international trade and investment by reducing double taxation.

1. • Taxation of the same income of the person in
two different countries.
• Such a situation arise due to the countries
following different rules for income taxation.
Double Taxation

2. Globally there are two rules of income
Taxation
Source of
Income
Residential
Rule

3. Source of income:-
• The income is taxed in the country where the
source of such income exist i.e. where the
business establishment is situated, where the
assets/property is located. Whether the
income earner is a resident in that country or
not.

4. Residential rule:-
• The income is taxed on the basis of the
residential status of a person in that country.
Such residential status is determined on various
basis such as
• Place of residence
• Nationality
• Control & management of affairs of business
• Place of incorporation of business

5. Avoidance of double taxation/ double
taxation Relief
Bilateral Relief
Unilateral Relief

6. Bilateral Relief
Under bilateral relief , the government of two
countries enter into double taxation
avoidance agreement(DTAAs) to provide relief
against such double taxation. These double
taxation avoidance agreement are also known
as “tax treaties”

7. Types of DTAAs
• Comprehensive DTAAs are those which cover
almost all the income covered by any model
convention. Many a time a treaty covers-
 wealth Tax
 Gift Tax
• Limited DTAAs are those which are limited to
certain type of income only.

8. Why double taxation avoidance
agreement are necessary:-
free flow of international trade and
investment.
 Protection against double taxation.
 Mutual exchange of information.
 It’s legal

9. Methods of Relief
Exemption
method Tax credit
method

10. Methods of relief under DTAAs
sec(90)
Exemption Method
• A particular income is taxed in one country and
exempt in other country.
Tax Credit Method
• The income
according to
is taxed
the treaty
both the countries
and the country of
residence will allow tax credit/ deduction for
the tax charged in the country of source.

11. Unilateral Relief
• Some countries are not in the position to
enter into such agreement with all the
countries. Hence often the country of the
residence provide some tax relief to its
resident persons in respect of their foreign
taxed income.

12. Normal tax provision of unilateral
relief:-
• Eligible person:- only a resident person is
eligible to claim unilateral relief.
• Conditions:-
the income is taxable in India as well as
foreign country because there is no
agreement between these countries.

13. Some practical issue:-
• Dividend distribution tax – no credit of there is
no underlying tax credit.
• Timing and rules of tax filling in both
countries.
• By sharing profits through legal planning into
these subsidiaries.

14. Conclusion
To conclude, we can say that the instrument of
taxation is of great significance on increasing the
level of economic activity and reducing the
income inequalities and help in promoting
economic growth .those who are mitigating to
other countries to earn a living have to pay taxes
in their country of residence as per prevalent tax
laws of the country.