In: Finance
Q: Method of Elimination of Double Taxation.
Ans:There are two method of mainly for avoidance of double taxation
Meaning of Double taxation: When income is taxed more than once for the taxable income sources.
a Exemption Method:- We will use exemption method of tax elimination when if required by Tax treaty.
Full exemption method:- when the income which is taxed in state A or B is not taken by state C for the purpose of its tax, State C is not entitled for taking that income for exemption consideration while determining tax to be imposed. it is called full exemption.
Exemption Regression :- The income for tax calculation taken by State A or B is not taxed by state C , but state C have the right to take that income for income tax consideration for rest income. which is called as exemption regression.
b: Credit Method:- In credit method foreign source income is taxed in domestic country, but at abroad tax deduction is granted to person concerned.
Full credit method:- Country A allows the income for tax deduction that is paid in another country. which is taxed in another country.
Ordinary Credit method:- In this method partial or restrictive allow of deduction is granted to that appropriate amount which is proportionately applicable to both countries.
In other word that part od tax deduction in granted to country A which is allowed to be taxed in another country in a same proportionate.