Double Taxation Relief

One of the major risk in the International Business is the payment of taxes in both the  countries i.e. the country in which the business is actually effected and in the  country where the MNC is having its head office. This type of double taxation  will definitely impede the growth and development of the MNCs in multiple  ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two  countries through two types of relief namely Bilateral Relief and Unilateral  Relief.

Bilateral Relief

Under this scheme, relief against the burden of double taxation is worked out on  the basis of mutual agreement between two countries. There are two types of  agreements. In one type, the two concerned countries agree that certain incomes  which are likely to be taxed in both countries shall be taxed only in of them or  that each of the two countries should tax only a specified portion of the income. In  the other type, the income subject to tax in both the countries but the assessee is  given a deduction from the tax payable by him in the other country, usually the  lower of the two taxes paid. This is called bilateral relief.

Unilateral Relief

There is no agreement under this scheme. Under unilateral relief, if any MNC  who is resident in India in any previous year proves that, in respect of its come  which accrued or arose during that previous year outside India, it has paid in  country with which there is no agreement for the relief or avoidance of double  taxation, income tax by deduction or otherwise, under the law in force in that  country, it shall be entitled to the deduction from the Indian Income Tax payable  by him of a sum calculated on such double taxed income at the Indian rate of tax  or the rate of tax of the said country, whichever is the lower, or at the Indian rate  of tax if both the rates are equal. This is called unilateral relief.

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