Foreign Tax Credit- How to Claim and Remember to File Form 67

Foreign Tax Credit- How to Claim and Remember to File Form 67

Claim Foreign Tax credit & File Form 67 of Income Tax in India

Taxpayers have to pay taxes in the country of their residence or from which they accrue or receive income. Therefore, if you are a resident of India and earn income from multiple countries, you might end up paying taxes in all such countries, including India. Foreign nations also follow the concept of withholding tax like TDS in India. However, as per the income tax law, the taxpayer can claim credit of such tax. Filing of Form 67 of income tax is important in order to claim such credit. But how to claim foreign tax credit in India? Before that, let’s discuss the concept of foreign tax credit in detail.

What is Foreign Tax Credit?

We can understand the concept of foreign tax credit in India with a simple example:

Suppose Mr. A is a resident of India and is also in receipt of income from the USA. Therefore, India will be the Residence State whereas the USA will be the Source State for Mr. A. In relation to the income generated in the USA, the US government will levy taxes. Whereas being a resident of India, Mr. A will be liable to pay taxes in India on his global income. Thus, tax on foreign income should also be paid in India. Therefore, it islikely that Mr. A will end up paying taxes twice on his income generated from the USA.  

This is where the concept of foreign tax credit comes into the picture. It allows the taxpayer to adjust the tax paid in the source state from the tax payable in the residence state. Therefore, in the present case, Mr. A will be able to adjust the taxes paid in the USA from the taxes payable in India. 

Foreign Tax Credit in India

Indian income tax law allows claiming of foreign tax credit (FTC) to the taxpayers by virtue of Sections 90 and 91 of the Income Tax Act, 1961.. Section 90 lays down the provisions relating to the claiming of FTC where India has entered into a Double Taxation Avoidance Agreement (DTAA) with other countries. Whereas, Section 91 lays down the provisions relating to the claiming of ITC where India has not entered into DTAA with other countries. 

Important Points in Relation to FTC in India 

Following are some of the important points in relation to the foreign tax credits in India:

  • FTC can be claimed in India in the year in which the income in relation to such FTC is offered for tax in India. If such income is offered to tax in India for more than one year, then FTC shall be allowed across all those years in the same proportion in which the income is offered to tax. 
  • FTC can be adjusted against tax, surcharge and cess payable in India. However, it cannot be adjusted against the fees, interest or penalty. 
  • The foreign tax credit in India cannot be availed of, if it is disputed. However, such FTC can be availed of, if the taxpayer furnishes evidence relating to the resolution of the dispute within 6 months after the dispute is settled. Such taxpayer also needs to provide evidence that the foreign tax has been discharged by him and furnish an undertaking that no refund has been claimed or will be claimed against such credit.
  • FTC can also be adjusted against the Minimum Alternate Tax (MAT) payable under Section 115JB. 
  • The amount of foreign tax credit that can be availed of depends upon the provisions of the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) entered into by India with such other country.

Form 67 Applicability and Due Date

As per Rule 128 of the Income Tax Rules, 1962, the taxpayers should file Form 67 of income tax on or before the end of the assessment year relevant to the previous year in which the income relevant to FTC was offered to tax in India. However, the return of income in relation to such assessment year should be filed within the due date prescribed u/s 139(1) or 139(4).

How to Claim Foreign Tax Credit?

Most taxpayers wonder how to take foreign tax credit in India. The assessee should furnish all the relevant documents for claiming the foreign tax credit, including Form 67. The amount of credit that can be availed of should be lower of the following:

  • Tax payable under the income tax act in India or
  • Foreign tax paid on such income. 

The FTC should be determined by converting the foreign currency in which the foreign tax was paid into INR. The conversion should be done by using the telegraphic transfer buying rate as on the last date of the month immediately preceding the month in which such foreign tax was deducted or paid. It should be noted that Form No. 67 of income tax should be furnished even if carrying backwards of loss of the current year results in a refund of foreign tax for which credit was claimed in the preceding previous years in India. 

In a Nutshell

While claiming foreign tax credit in India, it is important to comply with the provisions of the income tax law in India as well as the rules made thereunder. The provisions of DTAA should also be kept in mind in order to avoid any future disputes. You should make sure that you submit all the relevant documents while claiming the foreign tax credit and file your return of income within the due date. In case you need any assistance in relation to foreign tax credits in India, feel free to contact the ASC Group.


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