Double Taxation Relief under New Income Tax: Treaty Provisions, Bilateral Agreements, and Procedural Changes [Old vs New Income Tax Series - Article 8]

The Concept of Doubletaxation, where the same income was taxed by multiple countries, significantly impedes international trade, investment, and economic cooperation. In the modern globalized economy, cross-border transactions often result in income which is taxable in both the source country and the country of residence.

To address this risk, countries including India have developed Double Taxation Relief (DTR) mechanisms. This article examines India's statutory framework for DTR by analysing Sections 90, 90A, and 91 of the Income Tax Act, 1961, which provided the primary relief mechanisms, along with Sections 159 and 160, which were crucial for determining the scope and applicability of tax liabilities in cross-border scenarios.

Understanding Double Taxation Relief:

Taxpayers involved in cross-border transactions involving foreign salaries, corporate earnings, or investment income were unfairly burdened by the phenomenon known as "double taxation," which takes place when the same income was taxed by numerous nations all together.

Treaty-based relief, which operated through Double Taxation Avoidance Agreements (DTAAs) and used either the exemption method (where one country exempts income taxed by another) or the credit method (where foreign tax paid is credited against domestic tax liability), and unilateral relief, which was provided through domestic legislation in the absence of a treaty and permitted taxpayers to claim credit for foreign taxes paid, were the two main ways that countries provide relief.

India addressed this challenge through constitutional provisions and the Income Tax Act, which provided a comprehensive framework ensuring that both Indian residents earning foreign income and non-residents earning Indian income who were not subjected to excessive taxation, thus promoting economic growth and international cooperation starting at the grassroot levels.

Legal Framework: Old vs New Act

The enactment of the New Income Tax Act, 2025 made a significant legislative change, by replacing the Income Tax Act, 1961 with a more modernized framework aiming at simplifying the tax administration and enhancing clarity. In the aspect of double taxation relief, the new Act had restructured and changed the numbering of the main provisions while largely retaining the essential legal principles established under the old regime, regarding the Double Taxation Relief.

The Old Regime explained that double taxation relief was governed by three main sections: Firstly, Section 90 which illustrated bilateral agreements concerning treaty-based relief with individual countries; Secondly, Section 90A covered multilateral agreements involving multiple countries under international organizations or regional frameworks; and Thirdly, Section 91 that described unilateral relief for taxpayers claiming credit for foreign taxes paid in countries without tax treaties with India.

On the other hand, the New Act rationalized the structure by reinforcing these provisions into Sections 159 and 160 whereby, Section 159 integrated the former Sections 90 and 90A to create a unified framework covering both bilateral and multilateral tax agreements under a single diversified section, that eliminated repetition and enhanced understanding in treaty-based relief provisions in an effort to maintain the essential legal principles.

Section 90 vs Section 159: Treaty-Based Relief

Section 90 of the oldIncome Tax Act, 1961 served as the primary provision enabling the Central Government to enter into agreements with foreign countries for granting relief from double taxation. This section empowered the government to adopt either the exemption method or the tax credit method to avoid double taxation of income arising in one country to residents of another.

Section 159 of the New Income Tax Act replicates these provisions with enhanced clarity and consolidation. The transition from Section 90 to Section 159 was a largely renumbering exercise, with the core legal framework for bilateral tax treaties remaining intact.

· Bilateral Tax Agreements:

Bilateral tax agreements explained as treaties formed between two sovereign countries to assign taxing rights and eliminate double taxation on cross-border income. Section 90 covered the aspect that India entered into comprehensive DTAAs with over 90 countries, covering various categories of income such as business profits, dividends, interest, royalties, capital gains, and employment income.

These agreements specified which country had the primary right to tax certain specific types of income and provided mechanisms for the other country to either exempt such income or grant a tax credit. Whereas Section 159 continued this structure without any specific modification and maintained the government's authority to negotiate. These agreements notified under the old Act were valid in nature and became enforceable under the new legislative structure that ensured continuity in treaty benefits for taxpayers engaged in international transactions.

· Procedural Requirements:

Acquiring a Tax Residency Certificate (TRC) from the tax authorities of the country of residence, filing Form 10F, which included information about residency and beneficial ownership, and keeping check to support treaty benefits were the procedural requirements for treaty-based relief under Section 90.

On the other hand, Section 159 pointed out that only legitimate residents of contracting states could receive the required relief and granted procedural protections to avoid treaty misuse. Because procedural compliance was still a crucial component of double taxation relief under these bilateral agreements and the shift from Section 90 to Section 159 constituted structural reorganization rather than material reform.

Section 90A Provisions: Multilateral Agreements

Section 90A of the Income Tax Act, 1961 interpreted multilateral agreements which involved India and several other countries. Multilateral tax agreements included three or more countries working together on shared taxation rules, unlike bilateral treaties agreement between two countries. This adjustment allowed India to become part of important international events like the Multilateral Convention (MLI), which enabled the country to modernize multiple bilateral treaties simultaneously without renegotiating each one individually.

Under the New Income Tax Act, Section 90A has been merged into Section 159, creating a unified provision that covers both bilateral and multilateral agreements. This adaptation simplified the structure while ensuring that India's participation in the MLI and mutual administrative assistance conventions were valid and continued to operate without any disruption.

Section 91 vs Section 160: Unilateral Relief

Section 91 of the Income Tax Act, 1961 described the aspect of unilateral relief from double taxation where India had not entered into a tax treaty with a foreign country. This provision explained that Indian residents who were earning income from non-treaty countries were not subjected to any excessive taxation. Otherwise, under Section 91, resident taxpayers who paid tax in a foreign country who is also taxable in India, were able to claim relief by way of deduction from Indian tax.

Moving ahead, section 160 of the New Income Tax Act replaced Section 91 with equally similar provisions, maintaining the unilateral relief fragments without any necessary changes. The eligibility criteria required for the same was as before including: the taxpayer must be a resident of India, the income must accrue or arise outside India, the income must be taxable in both jurisdictions, and the taxpayer must have actually paid tax in the foreign country.

The procedural requirements under Section 160 were similar to those of Section 91, which required taxpayers to furnish evidence of foreign tax payment and maintain proper documentation establishing the nature and source of foreign income. This shift from Section 91 to Section 160 reflected legislative intent to preserve the unilateral relief mechanism while aligning it with the changing number structure of the New Income Tax Act.

Accordingly, for taxpayers governing in non-treaty jurisdictions, Section 160 continued to serve as an essential provision for justifying double taxation, contemplating treaty-based relief and ensuring comprehensive coverage for cross-border income taxation.

Evaluating the Impact: Reorganization and Taxpayer Implications

The New Income Tax Act, 2025 integrated Sections 90 and 90A into Section 159 and replaced Section 91 with Section 160, thus representing a structural reorganization rather than any materialistic reform. The legal entitlements, computational methods, eligibility criteria, and procedural requirements for claiming double taxation relief remain the same, to ensure continuity in treaty benefits and unilateral relief mechanisms.

· Structural Reorganization:

Structural Reorganization Concept was introduced by integrating Sections 90 and 90A into Section 159, which eradicated the differences between bilateral and multilateral agreements, with the establishment of New Income Tax 2025, whereby this amalgamation reflected a legislative approach which highlighted simplicity and accessibility, keeping in mind that both agreement types served the same fundamental purpose of preventing double taxation. Further, the Changes in numbers from Sections 90, 90A, and 91 to Sections 159 and 160 positioned itself with the broader reorganization of the entire Act completely.

· Substantive vs Procedural Changes:

The Transition to Sections 159 and 160 was characterized by an absence of material changes including legal entitlements, computational methods, eligibility conditions, and treaty principles remain identical to those under the old provisions wherein this continuity ensured that the legislative changes did not create uncertainty, interrupt the ongoing proceedings, or require taxpayers to reassess international tax strategies. Thus, the legislative intent was clearly protective in nature in order to maintain the essential status while improving administrative form.

· Impact on Taxpayers:

The taxpayers claimed double taxation relief, the practical impact was minimal in substantive terms but required attention to administrative adjustments. Existing tax treaties remain valid under Section 159, and unilateral relief claimed transition flawlessly to Section 160 without changes in eligibility or computation. Established practices for claiming foreign tax credits and filing documentation need not be altered due to changes in numbers of sections.

The reorganization presented an opportunity for taxpayers to review and optimize relief strategies. The consolidation under Section 159 provided a unified reference point, enhancing compliance efficiency for those dealing with multiple jurisdictions. The legislative transition also provided an occasion for updated guidance from tax authorities.

Navigating the New Framework:

A legislative evolution on clarity and simplicity was symbolized by the Shift to the New Income Tax Act, 2025. A structural rearrangement that enhanced accessibility and unified provisions was made when Sections 90, 90A, and 91 were replaced by Sections 159 and 160. On the other hand, Section 160 maintained unilateral relief for non-treaty states and assured complete protection against double taxation. Whereas, Section 159 harmonized bilateral and multilateral treaty-based remedies completely. Section 159 and 160 initiated compliance complexity which was decreased and administrative efficiency was improved by the said consolidation. This simplified structure facilitated efficient execution as India grew its network of treaties and took part in international projects like the Multilateral Convention and BEPS measures. Thus, the New Income Tax Act represented a forward-looking framework positioning India's tax system for an interconnected global economy, portraying legislative evolution in double taxation relief provisions.

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