Unilateral Relief

What is Unilateral Relief?

Unilateral Relief is a type of relief that helps in preventing double taxation. It comes under Section 91 of the Income Tax Act. This section provides relief for those individuals who earn their income from countries where India does not protect from double taxation.

Although there are DTAAs in more than 94 countries, Section 91 makes sure that the remaining countries still get the protection from double taxation on the same income. The unilateral relief in double taxation allows the taxpayers to claim the credit on the lower of the two tax rates paid in both countries. It helps in providing a good amount of relief if there is double taxation.

The specific conditions that are available in this relief are:

• Tax Liability: The income should be liable for taxability in both India and the Foreign country.
• Income Earned: The income that should have been earned in the previous financial year.
• Tax Payment: The taxpayer should have already paid the taxes on this income in the foreign country.
• Comparable Tax System: The tax systems of both countries should be comparable to each other.
• Relief Calculation: The lower tax rates by India or the foreign country on the foreign income. The amount of unilateral relief is deducted from the tax liabilities of the taxpayer.

How to Calculate Unilateral Relief?

To calculate the unilateral relief under section 91, you need to follow the steps below:

1. Calculate the tax that is payable in India: You need to determine the tax liability on the total income earned in a foreign country according to the Indian tax rates.
2. Compare both the tax rates: Identify the tax rate that is lower between the foreign country and India.
3. Calculate Relief: You need to apply the lower tax rate between the countries to avoid double taxation.