EDITORIAL NOTE — VOLS VIII + IX Volume VIII covers Chapter VIII of the 1961 Act — Rebates and Reliefs (ss. 86-89A): s. 86 (share of AOP/BOI member income), s. 87 (rebate to be allowed), s. 87 A (resident individual rebate up to ₹12,500 / ₹25,000), s. 89 (relief for arrears / advance receipts), s.…
ITA 1961 regimeVolume VIII–IX9 min read
1961 Treatise — Vols VIII–IX: Rebates DTAA
Vols VIII–IX — Rebates DTAA
EDITORIAL NOTE — VOLS VIII + IX
Volume VIII covers Chapter VIII of the 1961 Act — Rebates and Reliefs (ss. 86-89A): s. 86 (share of AOP/BOI member income), s. 87 (rebate to be allowed), s. 87A (resident individual rebate up to ₹12,500 / ₹25,000), s. 89 (relief for arrears / advance receipts), s. 89A (foreign retirement account taxation deferral). Volume IX covers Chapter IX — DTAA / Foreign Tax Credit (ss. 90, 90A, 91). The 2025 Act counterpart is Chapter IX (ss. 155-160).
VOLUME VIII — CHAPTER VIII — REBATES AND RELIEFS | Sections 86–89A
Section 86 — Share of Income from AOP / BOI
Where the assessee is a member of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India), income-tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A:
Provided that,—
(a) where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income;
(b) in any other case, the share of a member computed as aforesaid shall form part of his total income.
PLANNING NOTES
Section 86 prevents double-charge: AOP/BOI is taxed at MMR; member's share excluded from member's TI. Where AOP is taxed at slab rates (e.g., share of members determinate), the share is INCLUDED in member's TI but rebate u/s 86 ensures no double-tax.
Section 87A — Resident Individual Rebate
An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand five hundred rupees, whichever is less:
Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC [new regime], and the total income—
(a) does not exceed seven lakh rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;
(b) exceeds seven lakh rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven lakh rupees, the assessee shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount of total income that exceeds seven lakh rupees [marginal relief].
MARGINAL RELIEF MECHANICS
Marginal relief operates so that an assessee whose income marginally exceeds the rebate threshold (₹5L old regime / ₹7L new regime) does not pay tax disproportionate to the excess. Practical example: at ₹7,01,000 total income (new regime), tax would be ₹26,000; rebate cap is ₹25,000; marginal relief = ₹26,000 - 1,000 = ₹25,000, so tax payable is ₹1,000 only. The Bharat Tax Tax Calculator Excel automates this.
PLANNING NOTES
(i) Rebate u/s 87A is available ONLY to resident individuals — HUF, NR, AOP, firms / companies excluded. (ii) For senior citizens with mixed income, the rebate substantially eliminates tax up to threshold — model annually. (iii) New-regime ₹25,000 rebate (₹7L threshold) is materially better than old-regime ₹12,500 (₹5L threshold) — for low-income taxpayers, new regime is preferred.
Section 89 — Relief for Salary Arrears / Advance
Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed.
RULES 1962 CROSS-REFERENCE
Rule 21A — manner of computing s. 89 relief. Form 10E — mandatory filing before claiming s. 89 relief in ITR; failure to file Form 10E results in CPC disallowance. Online filing through e-portal.
PLANNING NOTES
(i) For arrears of salary / VRS / commuted pension / family pension arrears, ALWAYS file Form 10E electronically BEFORE the ITR. (ii) The s. 89 relief shifts arrears to the years they relate to, applying lower-rate computation — significant tax saving for VRS / promotion-arrears scenarios. (iii) Excel computation in Bharat Tax practice tools — verify methodology against Rule 21A.
Section 89A — Foreign Retirement Account Relief (FA 2021)
FA 2021 inserted s. 89A to provide deferral of taxation for income accruing in 'specified accounts' maintained outside India by Indian residents. The income is not taxed on accrual basis in India; it becomes taxable in the year of withdrawal — matching the source country's recognition timing. Notified countries: USA, UK, Canada (CBDT Notification No. 25/2022). Form 10-EE — mandatory election to be made in the first year the assessee becomes resident.
VOLUME IX — CHAPTER IX — DTAA / FOREIGN TAX CREDIT | Sections 90, 90A, 91
Section 90 — Agreement with Foreign Countries (DTAA)
(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,—
(a) for the granting of relief in respect of—
(i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or
(ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit of residents of any other country or territory), or
(c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or
(d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be,
and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.
(2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.
(2A) [FA 2017] Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him. [GAAR override of DTAA.]
(4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. [TRC requirement post FA 2012.]
JUDICIAL EVOLUTION — Treaty-Override / Beneficial-Provision
The Supreme Court in Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706 (SC), settled the s. 90(2) interpretation — DTAA prevails over the Income-tax Act if more beneficial to the assessee.
HELD: The provisions of section 90(2) clearly indicate that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, then the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. The treaty therefore overrides the Act if more beneficial. (per Azadi Bachao Andolan ¶ 27).
JUDICIAL EVOLUTION — Software Royalty Treaty Override
Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT, (2021) 432 ITR 471 (SC) — software-licence payments to non-residents NOT royalty under DTAA where the underlying right is to USE the software, not to use the COPYRIGHT in the software. Treaty position prevails over s. 9(1)(vi).
DEPARTMENTAL PRACTICE — TRC + Form 10F
Tax Residency Certificate (TRC) from the foreign country is mandatory under s. 90(4) post FA 2012. Form 10F (Income-tax Rules, 1962 r. 21AB-21ABA) — additional self-declaration with TIN / period of stay / address — mandatory along with TRC. Failure to furnish — DTAA benefits denied; full s. 195 TDS at domestic rates.
PLANNING NOTES
(i) For every cross-border payment, conduct DTAA analysis BEFORE TDS — invoke the more-beneficial limb of s. 90(2). (ii) Obtain TRC + Form 10F from the foreign payee BEFORE remittance; without these, default 25%-30% TDS applies. (iii) For software / FTS, cite Engineering Analysis to defeat blanket royalty TDS. (iv) GAAR (s. 90(2A)) overrides DTAA — for high-value transactions, consider GAAR / LOB / PPT analysis at design stage.
Section 90A — Adoption of DTAA Through Specified Associations
Section 90A enables Central Government to adopt and notify, in the Official Gazette, a tax agreement entered into between (a) any specified association in India, and (b) any specified association in a specified territory outside India. The agreement, on notification, has the same effect as a DTAA u/s 90. Limited operation; rarely invoked.
Section 91 — Countries with Which No Agreement Exists (Unilateral Relief)
(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly 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.
KEY POINTS
RULES 1962 CROSS-REFERENCE
Rule 128 — Foreign Tax Credit (FTC) framework. Form 67 — mandatory for claiming FTC; must be filed BEFORE the return due date u/s 139(1) — strict deadline. Foreign tax certificate / receipt + return filed in foreign country — supporting documents.
JUDICIAL EVOLUTION — Form 67 Filing
Brinda Kumar Krishna v. ITO, (2022) Bangalore ITAT — held that delay in filing Form 67 is a procedural lapse and FTC cannot be denied where the foreign tax payment is otherwise established. CBDT Circular 26/2022 dated 18-08-2022 codified this — Form 67 may be filed up to 31 March of the relevant AY without forfeiture.
PLANNING NOTES
(i) For NRIs returning to India with foreign income, examine whether DTAA exists; if yes, claim under s. 90; if no, claim s. 91. (ii) FILE FORM 67 EARLY — well before s. 139(1) due date; track foreign tax payment evidence. (iii) CBDT Circular 26/2022 + Brinda Kumar Krishna — defeat any CPC disallowance for late Form 67 filing as procedural; ensure FTC is restored. (iv) For multi-source foreign income, segregate by country and tax-credit basis; maintain reconciliation.
CLOSING NOTE — VOLS VIII + IX
Volumes VIII and IX cover the rebate / relief / DTAA / FTC architecture. Authorities — Azadi Bachao Andolan, Engineering Analysis, Brinda Kumar Krishna — are verified.