Since, each nation have differenent rules of taxing persons, the same income may get taxed more than once (often referred to as residence-source conflict). Hence, resident country has to grant credit for the taxes paid in the other country.
Also, it is difficult to lay down a uniform mechanism for allowability of Foreign tax credit because of the differences in determination of taxes especially deductions, allowances etc. There are different mechanisms of providing foreign tax credit. Double taxation may arise because of judicial or economic double taxation. These mechanisms of providing credit are –
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