Types of Relief :

Relief from double taxation can be provided in mainly two ways: (i) Bilateral Relief; and (ii) Unilateral relief

(i) Bilateral Relief: Under this method, the Governments of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which the relief is to be granted. India has entered into agreements for relief against or avoidance of double taxation with more than 50 countries which include Sri Lanka, Switzerland, Sweden, Denmark, Japan, Federal Republic of Germany, Greece, etc.

Bilateral Relief may be granted in either one of the following methods:

(a) Exemption method, by which a particular income is taxed in only one of the two countries; and

(b) Tax relief method, under which, an income is taxable in both countries in accordance with their respective tax laws read with the double taxation avoidance agreement. However, the country of residence of the tax payer allows him credit for the tax charged thereon in the country of source.

In India, double taxation relief is provided by a combination of the two methods.

(ii) Unilateral Relief: This method provides for relief of some kind by the home country even where no mutual agreement has been entered into by the two countries.