Work makes you go around the world. And you pay taxes on your income arising in each country.

So, what do you do when you come back to India? Do you pay taxes again on the taxed income brought back with you?

India has double taxation avoidance treaties with many countries, whereby Indian residents are allowed tax credit for the amount of tax paid on income arising in such countries.

But what happens if income arises in a country with which no such agreement exists, but the assessee pays tax in that country?

The income tax act provides unilateral double taxation relief to the residents, provided the assessee can prove that tax on such income has been paid in those countries.

In such cases, the individual is entitled to a deduction from the Indian income tax payable by him of an amount calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the other country, whichever is lower.

Take for instance, Preeti, an Indian citizen, who goes on assignments to countries with which India has no double taxation avoidance treaties. Suppose, in rupee terms, Preeti earns Rs 4 lakh in that country and pays tax of Rs 40,000. For the purpose of determining the rate of tax in a foreign country, income tax and super tax, if any paid by her, is divided by the total income assessed in that country. Thus, here the tax rate comes to 10 per cent.

Therefore, she brings back Rs 3,60,000 to India. In India, her tax payable on the income is Rs 58,000 and her marginal tax rate is the highest at 30 per cent. Therefore, she will get a deduction of 10 per cent (lower of the two tax rates) on Rs 3,60,000, i.e. Rs 36,000 from her Indian income tax payable of Rs 58,000. Thus, she has to pay a tax of Rs 22,000 in India.