Section 91 of ITA, 1961 : Section 91: Countries With Which No Agreement Exists

Explanation using Example

Example of Section 91 Application:

Let's consider Mr. Sharma, a resident of India, who works as a freelance software developer. During the financial year, he earned INR 10,00,000 from a project he completed for a client based in Brazil, where there is no Double Tax Avoidance Agreement (DTAA) with India. The Brazilian government levies a tax of 20% on his earnings, which means Mr. Sharma paid INR 2,00,000 as tax in Brazil.

When Mr. Sharma files his income tax return in India, his global income, including the income earned from Brazil, is subject to taxation. Assuming the Indian tax rate for his income slab is 30%, he would owe INR 3,00,000 in taxes on his Brazilian income. However, under Section 91, he can claim relief for the taxes paid in Brazil.

Since the Indian tax rate is higher than the Brazilian tax rate, Mr. Sharma can claim a deduction of INR 2,00,000 (the amount paid in Brazil) from his Indian tax liability. This means he would only need to pay the differential tax of INR 1,00,000 in India on his Brazilian income, thereby avoiding double taxation on the same income.