Section 159 of the Income-tax Act, 2025 empowers the Central Government to enter into agreements with other countries or specified territories for relief from double taxation, exchange of information and recovery of tax, and to notify provisions implementing them.
What section 159 does
Section 159 is the treaty provision — merging sections 90 and 90A of the Income-tax Act, 1961 into one section. Sub-section (1) covers agreements with the Government of another country or a specified territory; sub-section (2) covers agreements between a specified association in India and one in a specified territory.
The four permitted purposes are in sub-section (3): granting relief where tax has been paid in both jurisdictions or to promote mutual economic relations, trade and investment; avoidance of double taxation; exchange of information for prevention and investigation of evasion or avoidance; and recovery of tax.
Clause (3)(b) carries language that did not appear in the older drafting: avoidance of double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements aimed at obtaining reliefs for the indirect benefit of residents of another country or territory. This writes the BEPS purpose test into the section itself.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 90(1) | Agreement with another country | 159(1) |
| 90A(1) | Agreement between specified associations | 159(2) |
| 90(1)(a) to (d) | Purposes of the agreement | 159(3) |
| 90(2) | More beneficial of Act or treaty applies | 159(4) onwards |
| 90(4) | Tax residency certificate | 159 — later sub-sections |
| 91 | Unilateral relief where no agreement exists | 160 |
| 94A | Notified jurisdictional areas | 176 |
Section 159 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-sections (1) and (2) — who may enter into an agreement
The Central Government may enter into an agreement with the Government of any other country or any specified territory for the purposes in sub-section (3), and may by notification make provisions necessary for implementing it. Separately, any specified association in India may enter into an agreement with a specified association in a specified territory, which the Central Government may likewise implement by notification.
Sub-section (3)(a) — relief in respect of double-taxed income
Relief may be granted in respect of (i) income on which income-tax has been paid both under this Act and in the other country or territory; and (ii) income-tax chargeable under this Act and under the corresponding law there, to promote mutual economic relations, trade and investment. Note the second limb permits relief even where double taxation has not actually occurred, for economic policy reasons.
Sub-section (3)(b) — avoidance of double taxation, and the anti-abuse purpose
Agreements may provide for avoidance of double taxation of income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance — expressly including through treaty-shopping arrangements aimed at obtaining reliefs under the agreement for the indirect benefit of residents of any other country or territory.
Sub-sections (3)(c) and (d) — information and recovery
Agreements may also provide for exchange of information for (i) the prevention of evasion or avoidance of income-tax under this Act or the corresponding law there, or (ii) the investigation of such cases; and for the recovery of income-tax under this Act and under the corresponding law. These are the provisions under which information requests and assistance in collection operate.
Sub-section (4) onwards — the taxpayer's entitlement
The section continues with the operative rules for a taxpayer to whom an agreement applies — including the principle that the provisions of the Act apply to the extent they are more beneficial than the agreement, and the documentation requirements such as a tax residency certificate. Read those sub-sections before claiming a treaty rate.
Where no agreement exists
Section 160 — the successor to section 91 — provides unilateral relief for tax paid in a country with which India has no agreement. And section 176 carries the notified jurisdictional area provisions of section 94A.
Worked example
An Indian resident earns income in a treaty country in tax year 2026-27.
| Question | Answer under section 159 |
|---|---|
| Is the foreign income taxable in India? | Yes — a resident is taxed on worldwide income under section 5(1) |
| Is relief available for the foreign tax paid? | Yes, under a section 159 agreement — the relief limb in sub-section (3)(a)(i) |
| What if there is no treaty with that country? | Unilateral relief under section 160 |
| Can a holding structure be used to access a favourable treaty? | Sub-section (3)(b) expressly targets treaty-shopping arrangements aimed at indirect benefit for residents of another country |
| Does the department get information from the other country? | Yes, under the exchange of information limb in sub-section (3)(c) |
The fourth row is the one that has changed in emphasis. The older drafting spoke of avoidance of double taxation; section 159(3)(b) adds, in the section itself, that this is not to create opportunities for non-taxation or reduced taxation, and names treaty shopping. Structures relying on an intermediate holding jurisdiction should be tested against that language, and against the GAAR in Chapter XI.
Relief claimed under section 159 is taken into account in self-assessment under section 266(2)(d) and (e) and in computing assessed tax under section 424(2)(c) and (d).
Compliance checklist and due dates
- Identify whether an agreement exists with the relevant country or specified territory; if not, use section 160.
- Obtain the tax residency certificate and any prescribed documentation before claiming a treaty rate.
- Apply the more beneficial of the Act and the agreement, as the later sub-sections provide.
- Test any intermediate holding structure against the treaty-shopping language in sub-section (3)(b) and against Chapter XI GAAR.
- Claim the relief in self-assessment under section 266(2)(d) and (e) and reflect it in assessed tax under section 424.
- For payments to non-residents, read section 159 together with section 393 and the certificate route in section 395(2).
- Check whether the jurisdiction is a notified area under section 176.
Common mistakes
- Claiming a treaty rate without the tax residency certificate and prescribed documentation.
- Assuming a treaty always prevails; the Act applies where it is more beneficial.
- Relying on an intermediate holding company purely for treaty access, which sub-section (3)(b) and GAAR both address.
- Confusing section 159 with section 160 — the latter applies only where no agreement exists.
- Overlooking that exchange of information under clause (3)(c) means the other jurisdiction's data may already be with the department.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.