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     EduGorilla 
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    Direction: Read the given passage carefully and answer the questions that follow. Certain word(s) are printed in bold to help you locate them while answering some of these.

    Globalisation is bringing the world closer with each passing day. Many individuals are becoming global citizens, moving from one country to the other as part of their work requirements. They are also happy to explore the new opportunities as it is financially very lucrative for them. But this has raised some tax complications for them. In a situation where the residential country is different from the one where one works the Double Tax Avoidance Agreement (DTAA) can come to the rescue of such taxpayer. It is a bilateral or multilateral agreement between two or more countries to resolve the issues of taxation of income in order to bring transparency and to stem tax evasion.
    DTAA helps in (1) Allocation of taxpayers’ income and related taxing rights of two countries, (2) Avoiding double taxation of income, and (3) For smoother recovery of income tax in both the countries. Under the deduction method, the country in which the taxpayer is a resident, allows him a deduction from the taxable income, on account of the taxes paid in another country on his foreign source. This method is not very common as it does not eliminate double taxation completely. Under the exemption method, the taxpayer can claim his foreign source income as exempt from tax. This would imply that the income is not included in taxable income at all. Hence, there would be no question of double taxation. India has tax treaties with many countries, some of which provide for the exemption of certain incomes from double taxation.
    Under the credit method, the taxpayer first includes his foreign source income in his total taxable income in the country of residence (i.e. India) and calculates the taxes as per the normal provisions of the tax laws of that country. Then he will be eligible to claim the credit for the foreign taxes (in respect of the doubly taxed income) against the respective tax liability in the country of residence. The taxpayer will be able to claim the credit at a rate lower of the taxes paid in the foreign country and the taxes payable in the home country as applicable on the doubly taxed income. This is the most commonly used method of providing relief from double taxation and finds a place in almost all the tax treaties. In simple words, if the tax rate in the resident country is higher than the foreign country, the taxpayer will have to pay the differential (additional) taxes in the home country. If the tax rate in the resident country is lower than the foreign country, he will be able to claim only to the extent of the rate at which the income is taxable in resident country. Therefore, if India does not have a tax treaty with the country from which you are earning income, you can still claim a foreign tax credit under section 90A of the IT Act.

    Source: https://www.huffingtonpost.in

    Which of the following best describes the central theme of the passage?

    Options :-

    1. Methods for reducing double taxation 
    2. How to prevent double taxation when one lives in a different city and works in a different city
    3. The way tax is calculated when the residential country is different from the working one
    4. How to take benefits from a foreign country
    5. How to choose which country to earn in.
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