International taxation | India
Section 90 of the Income-tax Act, 1961: DTAA Agreements, Tax Relief and Treaty Benefits
Section 90 authorises India to enter into tax agreements with foreign countries and specified territories. These agreements can prevent double taxation, provide relief, facilitate exchange of information and assist tax recovery. Whether a taxpayer receives treaty benefits depends on the relevant treaty, domestic law and applicable anti-abuse rules.
What is Section 90?
Section 90 is the statutory basis for bilateral arrangements between the Government of India and a foreign government or a specified territory. The most familiar agreements are Double Taxation Avoidance Agreements (DTAAs), which allocate taxing rights and provide methods for eliminating double taxation. Agreements may also deal with tax information exchange and assistance in collecting tax.
Double taxation occurs when the same income is subject to tax in more than one jurisdiction. A DTAA may address this through exemptions, limits on source-country taxation or a credit for foreign tax, depending on the treaty's terms.
Section 90: statutory provisions explained
Section 90(1): power to enter into agreements
The Central Government may conclude agreements with a country or specified territory outside India for the following purposes:
- Clause (a): granting relief where income is taxed in India and abroad, or where taxes are chargeable under both laws, including to promote economic relations, trade and investment.
- Clause (b): avoidance of double taxation of income.
- Clause (c): exchange of information to prevent or investigate tax evasion or avoidance.
- Clause (d): recovery of income-tax under Indian and corresponding foreign laws.
The Government may issue notifications in the Official Gazette to implement such agreements.
Section 90(2): more beneficial provisions
For a person to whom a qualifying treaty applies, the provisions of the Income-tax Act, 1961 apply to the extent they are more beneficial than the treaty. In practice, this means the applicable domestic and treaty rules must be compared for the specific income and taxpayer. Treaty entitlement is not automatic.
Section 90(2A): GAAR override
Chapter X-A of the 1961 Act, containing the General Anti-Avoidance Rules (GAAR), can apply notwithstanding the more-beneficial-treatment rule in subsection (2). Treaty claims can therefore be subject to statutory anti-abuse scrutiny.
Section 90(3): undefined expressions
Terms not defined in the Act or treaty may receive meanings specified by a Central Government notification, subject to the statutory conditions and the treaty context.
Section 90(4): Tax Residency Certificate
A non-resident claiming relief under a treaty must obtain a certificate of residence from the government of the relevant foreign country or specified territory. This is commonly called a Tax Residency Certificate (TRC).
Section 90(5): additional information
The non-resident claimant must also furnish other prescribed information and documents. Rule 21AB and Form 10F are relevant to this requirement; applicable filing procedures and exemptions should be checked for the period concerned.
Explanations to Section 90
- Explanation 1: a higher Indian tax rate on a foreign company than on a domestic company is not, by itself, an impermissibly less favourable levy for this purpose.
- Explanation 2: a specified territory means an area outside India notified by the Central Government.
- Explanation 3: addresses the effect of notified meanings of treaty terms that are otherwise undefined.
- Explanation 4: clarifies the approach to terms defined in a treaty and those defined under domestic law.
How DTAA benefits work
Depending on the agreement and the facts, a DTAA may affect taxation of dividends, interest, royalties, fees for technical services, employment income, business profits, capital gains and other income. For example, a treaty may cap withholding tax on interest or require a permanent establishment before certain business profits can be taxed in the source state.
Permanent establishment (PE) generally refers to a sufficient business presence in a country under the relevant treaty; its precise definition and exceptions depend on the agreement. Beneficial ownership and limitation-of-benefits or principal-purpose rules may also matter for particular payments and treaties.
Many Indian treaties have been affected by the Multilateral Instrument (MLI). A treaty should be read with the applicable protocol, notifications, MLI positions and effective dates, rather than relying solely on an older treaty text.
Section 90 versus Section 91
Section 90 concerns treaty-based relief. Section 91 historically provides unilateral relief in qualifying cases where no applicable double-taxation agreement exists. Their conditions and computations differ.
Foreign tax credit
For eligible Indian residents, relief for foreign taxes may arise under a DTAA and the applicable Indian rules. Under the 1961 Act framework, Rule 128 and Form 67 are relevant to foreign tax credit claims. The amount and timing depend on the nature of income, taxes paid, and procedural compliance.
Documents and compliance for treaty relief
- Identify the applicable DTAA and the relevant article governing the income.
- Confirm the recipient's tax residence and eligibility under the treaty.
- Obtain a valid TRC from the relevant foreign tax authority where required.
- Provide Form 10F and supporting information where prescribed, and check current electronic-filing requirements.
- Review permanent-establishment, beneficial-ownership and anti-abuse restrictions.
- Check withholding-tax provisions, the treaty rate, and any documentation required by the payer.
- Retain proof of foreign taxes paid and submit foreign-tax-credit documents where relevant.
For non-residents receiving Indian income, withholding tax may also involve Sections 195 and 197 of the 1961 Act for applicable periods. A TRC supports a treaty claim but does not conclusively establish entitlement if other treaty conditions are not met.
Practical illustrations
Example 1: Interest paid to a foreign resident
An Indian payer makes an interest payment to a resident of a treaty partner. The applicable Indian domestic rate and the treaty's interest article must be compared. A reduced treaty rate can be considered only if the recipient satisfies residence, beneficial-ownership and other treaty requirements and supplies the required documents.
Example 2: Indian resident earns income overseas
An Indian resident receives taxable income from another country and pays tax there. The applicable DTAA may allow credit in India, subject to the treaty, Indian foreign-tax-credit rules and the tax attributable to that income. This is not necessarily a full refund of foreign tax paid.
Example 3: Business profits without a PE
Under many DTAAs, business profits of a foreign enterprise are taxable in India only where the enterprise has a qualifying PE in India, subject to the particular treaty and income classification. The relevant treaty wording and facts must be examined before applying this principle.
Legislative background and the 2025 Act
Section 90 was substantially substituted by the Finance (No. 2) Act, 2009, with effect from 1 October 2009. Later amendments introduced or clarified the GAAR override, TRC requirements, prescribed documentation and treaty-term interpretation. The Income-tax Act, 2025 changes the domestic statutory framework for periods beginning on or after 1 April 2026. Existing agreements, notifications and transition rules must be checked when applying treaty relief under the new framework.
Frequently asked questions
Does a DTAA mean foreign income is never taxed in India?
No. A DTAA allocates taxing rights and may provide exemptions, reduced rates or credits. Its treatment depends on the income type and treaty.
Is a TRC sufficient by itself to obtain treaty benefits?
No. It is a key statutory document for a non-resident claim, but other requirements, including Form 10F where applicable and treaty anti-abuse conditions, can apply.
Can treaty provisions override Indian domestic law?
Under Section 90(2) of the 1961 Act, the more beneficial treatment generally applies to an eligible treaty claimant, subject to exceptions including GAAR under Section 90(2A).
Are all Indian DTAAs identical?
No. Definitions, tax rates, exemptions, dispute procedures and anti-abuse provisions differ. Consult the particular treaty and any amending protocol or MLI modification.
What if India has no DTAA with the other country?
Eligible taxpayers may need to consider unilateral relief under the relevant domestic provision, historically Section 91 of the 1961 Act.
Official legal and tax resources
- Income Tax Department: Income-tax Act and statutory materials
- Income Tax Department: Double Taxation Avoidance Agreements
- Income Tax e-Filing Portal: forms and filing guidance
- India Code: Central legislation
- OECD: Multilateral Instrument information
Information is general in nature. Verify the applicable law, treaty text, notifications and filing requirements for the relevant tax year before taking a tax position.